Exhibit 99



                  HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
                             Index to Annual Report





                                                               Page
Selected Consolidated Financial Data                              2
Management's Discussion and Analysis of Financial Condition
     and Results of Operations                                    5
Independent Auditor's Report                                     16
Consolidated Statement of Financial Condition - September 30,
     1997 and 1996                                               17
Consolidated Statements of Earnings -  Years ended September
     30, 1997, 1996, and 1995                                    18
Consolidated Statements of Stockholders' Equity - Years ended
     September 30, 1997, 1996, and 1995                          19
Consolidated Statement of Cash Flows -Years ended September
     30, 1997, 1996, and 1995                                    20
Notes to the Consolidated Financial Statements                   22




All schedules are omitted as they are not required or are not  applicable or the
required  information  is  shown  in  the  applicable   consolidated   financial
statements or notes thereto.

Harbor Financial, M.H.C has limited assets and liabilities, other than the stock
of Harbor Florida Bancorp, Inc. Accordingly, the financial statements of Harbor
Financial, M.H.C. are omitted due to immateriality.

                                       1
<PAGE>

Selected Consolidated Financial Condition Data


                                      September 30,
                               1997      1996       1995     1994       1993
                                    (In thousands)

Total assets............ $1,131,024  $1,057,443   $886,570  $808,110  $759,389
Loans (net)(1)..........    834,270     765,019    631,307   576,406   546,699
Federal funds sold......        250      16,075     12,825     7,400    17,500
Investment securities(2)     53,553      53,493     25,186    40,286    45,522
Mortgage-backed
     securities.........    176,854     153,293    164,759   120,099    89,535
Real estate owned (net).      2,314       3,118      2,786     2,522     6,198
Deposits................    911,576     851,853    720,981   673,830   651,093
FHLB advances...........    100,000      95,000     65,000    45,000    45,000
Other borrowings........        475         674        974     1,273       990
Stockholders' equity....     96,802      84,832     77,500    68,251    40,230
---------------

     (1)  Excludes  loans held for sale of $141,000,  $4.9 million,  $1 million,
          $25,000, and $679,000,  as of September 30, 1997, 1996, 1995, 1994 and
          1993, respectively.

     (2)  Includes investments available for sale of $47,553 and $33,493 in 1997
          and 1996, respectively.

                                       2
<PAGE>

Selected Consolidated Operating Data

                                            Years Ended September 30,
                                   1997      1996     1995     1994     1993
                                   -----------------------------------------
                                                    (In thousands)
Interest income..................$84,814   $74,357  $64,884  $56,084  $55,674
Interest expense................. 45,159    39,114   33,280   26,276   27,251
                                  ------    ------   ------   ------   ------
    Net interest income.......... 39,655    35,243   31,604   29,808   28,423
 Provision for (recovery of)
      loan losses................    782       (76)     460    1,553    1,890
                                     ---       ---      ---    -----    -----
    Net interest income
      after provision for
      loan losses                 38,873    35,319   31,144   28,255   26,533
                                  ------    ------   ------   ------   ------
Other income:
    Income (loss) from real
      estate operations..........    145      (301)     (40)   1,250   (2,792)
    Gain (loss) on sale of
      mortgage loans.............    188       (40)      91      118      281
    Other........................  3,880     3,226    2,856    2,701    2,668
                                   -----     -----    -----    -----    -----
         Total other income......  4,213     2,885    2,907    4,069      157
                                   -----     -----    -----    -----      ---
Other expenses:
    Compensation and benefits.... 11,931    10,690   10,048    9,433    9,078
    Professional fees............    599       527      699    1,137      711
    SAIF deposit insurance
         premium.................    785     6,300    1,556    1,672    1,627
    Other........................  7,833     6,615    5,895    5,624    5,555
                                   -----     -----    -----    -----    -----
         Total other expenses.... 21,148    24,132   18,198   17,866   16,971
                                  ------    ------   ------   ------   ------
 Income before income taxes...... 21,938    14,072   15,853   14,458    9,719
Income tax expense ..............  8,611     5,432    5,958    5,254    4,016
                                   -----     -----    -----    -----    -----
 Income before extraordinary
     item and cumulative effect
     of change in accounting
     principle................... 13,327     8,640    9,895    9,204    5,703
Extraordinary item (1)...........    ---       ---      ---   (1,342)     ---
 Cumulative effect on prior
     years of changing to a
     different method of
     accounting for income
     taxes.......................   ---       ---      ---      1,935    ---
                                  ------    ------   ------   ------   ------
Net income....................... 13,327   $ 8,640  $ 9,895  $ 9,797  $ 5,703
                                  ======   =======  =======  =======  =======


(1)      Extinguishment of FHLB advances for year 1994.


                                   3
<PAGE>

Selected Financial Ratios
<TABLE>
<CAPTION>

                                                         At or for the Years Ended September 30,
                                                      1997      1996      1995      1994      1993
                                                      ----      ----      ----      ----      ----

Performance Ratios:
<S>                                                 <C>       <C>       <C>       <C>       <C>
    Return on average assets .................        1.22%      .91%     1.16%     1.25%      .77%
    Return on average stockholders' equity ...       14.72     10.51     13.61     16.85     15.14
    Net interest rate spread .................        3.36      3.40      3.42      3.68      3.92
    Net yield on average interest-earning
         assets ..............................        3.72      3.79      3.80      3.92      4.04
    Noninterest expense to average assets ....        1.93      2.53      2.14      2.27      2.29
    Net interest income to noninterest
         expense .............................        1.88      1.46      1.74      1.67      1.67
    Average interest-earnings assets to
         average interest-bearing liabilities       108.33    109.24    109.58    106.94    103.13

Asset Quality Ratios:
    Nonperforming assets to total assets .....         .43       .50       .71       .85      2.19
    Allowance for loan losses to total loans .        1.40      1.44      1.60      1.64      1.34
    Allowance for loan losses to
         nonperforming loans .................      453.11    507.25    286.70    329.74    209.67
    Allowance for losses on real estate
         owned  to total real estate owned ...       19.99     35.45     40.00     33.37     26.09

Capital Ratios:
    Average stockholders' equity to average
         assets ..............................        8.26      8.62      8.54      7.40      5.09
    Stockholders' equity to assets at period .        8.56      8.02      8.74      8.45      5.30
         end
</TABLE>

                                       4
<PAGE>

Management's Discussion
and analysis of Financial Condition and Results of Operations

General

Harbor Florida Bancorp, Inc. ("the Company") results of operations are primarily
dependent on its net interest  income.  Net interest income is a function of the
balances of loans and  investments  outstanding  in any one  period,  the yields
earned on such loans and  investments  and the  interest  paid on  deposits  and
borrowed  funds  that  were  outstanding  in that  same  period.  The  Company's
noninterest income consists primarily of fees and service charges, gains on sale
of mortgage loans and,  depending on the period,  real estate  operations  which
have  either  provided  income  or loss.  The  results  of  operations  are also
significantly  impacted by the amount of provisions  for loan losses  which,  in
turn, is dependent  upon,  among other  things,  the size and makeup of the loan
portfolio,  loan quality, and trends. The noninterest expenses consist primarily
of employee compensation and benefits, occupancy expense,  professional fees and
federal deposit  insurance  premiums.  Its results of operations are affected by
general  economic and competitive  conditions,  including  changes in prevailing
interest rates and the policies of regulatory agencies.

Market Risk and Asset and Liability Management

The  Company  attempts  to manage its assets and  liabilities  in a manner  that
stabilizes  net interest  income and net  economic  value under a broad range of
interest  rate  environments.  This is  accomplished  by matching  maturity  and
repricing  periods on loans and investments to maturity and repricing periods on
deposits and borrowings.

The matching of assets and liabilities may be analyzed by determining the extent
to which such assets and liabilities  are interest rate  sensitive.  An asset or
liability is  considered to be interest  rate  sensitive  within a specific time
period if it  matures  or  reprices  within  that  time  period.  Interest  rate
sensitivity  analysis,  also known as "gap"  analysis,  attempts  to measure the
difference between the amount of  interest-earning  assets expected to mature or
reprice within a specific time period compared to the amount of interest-bearing
liabilities  expected to mature or reprice within that time period.  An interest
rate  sensitive  "gap" is  considered  positive when the amount of interest rate
sensitive  assets  exceeds the amount of  interest  rate  sensitive  liabilities
maturing or  repricing  within a specified  time period.  A "gap" is  considered
negative  when the amount of interest  rate  sensitive  liabilities  exceeds the
amount of  interest  rate  sensitive  assets  that  mature or  reprice  within a
specified time period.  Interest rate sensitivity  analysis is based on numerous
assumptions, such as estimates for paying loans off prior to maturity. Estimates
are revised annually to reflect the anticipated interest rate environment.

Generally,  an institution with a positive  interest rate sensitivity  "gap" can
expect net interest  income to increase  during periods of rising interest rates
and decline during periods of falling interest rates.  Likewise,  an institution
with a negative  "gap" can expect an  increase  in net  interest  income  during
periods of falling  interest rates and a decrease in net interest  income during
periods  of  rising  interest  rates.  At  September  30,  1997,  the  Company's
cumulative one year interest rate sensitivity "gap" was negative 12.45%.

In addition to interest rate sensitivity analysis, the Company monitors interest
rate  risk  exposure  with  the  use  of  computerized  simulation  models.  The
computerized  models  simulate  the effect of rising and falling  interest  rate
levels  on the  Company's  net  interest  income  and net  economic  value.  The
Company's Board of Directors reviews the simulation results on a quarterly basis
to ensure that simulated  fluctuations  of net interest  income and net economic
value remain  within  limits  established  in the  Company's  interest rate risk
management policy.

The Board of  Directors  has  established  an  asset/liability  committee  which
consists of the Company's  president and senior Company officers.  The committee
meets on a monthly  basis to review  loan and  deposit  pricing  and  production
volumes,  interest rate risk  analysis,  liquidity and  borrowing  needs,  and a
variety of other asset and liability management topics.

The Company currently utilizes the following  strategies to reduce interest rate
risk: (a) the Company seeks to originate and hold in portfolio  adjustable  rate
loans which have  annual  interest  rate  adjustments;  (b) the Company  sells a
portion of newly originated 20 and 30 year fixed rate mortgage loans,  currently
$100,000 to $200,000 per month; (c) the Company seeks to lengthen the maturities
of deposits  when deemed cost  effective  through the pricing and  promotion  of
certificates of deposits; (d) the Company seeks to attract low cost checking and
transaction accounts which tend to be less interest rate sensitive when interest
rates rise;  and (e) the Company has  utilized  long term Federal Home Loan Bank
("FHLB")  advances to fund the origination of fixed rate loans. The Company also
maintains a high level of liquid assets  consisting of shorter-term  investments
which are expected to increase in yield as interest rates rise.

                                       5

<PAGE>

Interest Rate Sensitivity

The table below provides  information about the Company's financial  instruments
that are sensitive to changes in interest  rates as of September  30, 1997.  For
borrowings, the table presents principal cash flows by expected maturity dates.


<TABLE>
<CAPTION>


                                                  Four to        More than       More than
                                   Within          twelve       one year to    three years to   Over five
                                three months       months       three years      five years      years          Total
                                ------------       ------       -----------      ----------      -----          -----
                                                                       (Dollars in thousands)

Interest-earning assets (1):
<S>                               <C>            <C>            <C>            <C>            <C>           <C>
    Mortgage loans (2)
       Fixed rate .............   $   15,032     $   45,093     $   96,315     $   71,876     $  194,052    $  422,368
       Adjustable rate ........       55,956        171,506         28,266         61,534          6,003       323,265
    Other loans (2):
       Fixed rate .............        5,010         15,031         25,502         13,607         13,964        73,114
       Adjustable rate ........       18,224          8,342            787           --             --          27,353
    Mortgage-backed
       securities:
       Fixed rate (3) .........        7,275         21,826         43,850         21,717         33,270       127,938
       Adjustable rate ........        4,751         44,165           --             --             --          48,916
    Investment securities
       and other assets .......       31,580         14,483         30,071           --             --          76,134
                                  ----------     ----------     ----------     ----------     ----------    ---------- 
         Total ................   $  137,828     $  320,446     $  224,791     $  168,734     $  247,289    $1,099,088
                                  ----------     ----------     ----------     ----------     ----------    ----------
Interest-bearing liabilities:
    Deposits(4):
       NOW accounts ...........   $    5,205     $   15,614     $   19,985     $    7,195     $    4,046    $   52,045
       Passbook accounts ......       11,481         34,443         25,717          4,115            784        76,540
       Money market
         accounts .............        8,680         26,041          8,333            333             14        43,401
       Certificates of
         deposits .............      164,116        303,088        180,702         41,006            848       689,760
    Borrowings ................       20,375         10,100         10,000         15,000         45,000       100,475
                                  ----------     ----------     ----------     ----------     ----------    ----------
         Total ................   $  209,857     $  389,286     $  244,737     $   67,649     $   50,692    $  962,221
                                  ----------     ----------     ----------     ----------     ----------    ----------
 Excess (deficiency) of
    interest earning assets
    over interest- bearing
    liabilities ...............   $  (72,029)    $  (68,840)    $  (19,946)    $  101,085     $  196,597    $  136,867
                                  ==========     ==========     ==========     ==========     ==========    ==========
 Cumulative excess
    (deficiency) of interest-
    earning assets over
    interest-bearing
    liabilities ...............   $  (72,029)    $ (140,869)    $ (160,815)    $  (59,730)    $  136,867
                                  ==========     ==========     ==========     ==========     ==========
 Cumulative excess
    (deficiency) of interest-
    earning assets over
    interest-bearing
    liabilities as a percent of
    total assets ..............        (6.37)%       (12.45)%       (14.22)%        (5.28)%       12.10%
                                       =====         ======         ======          =====         ===== 
</TABLE>
--------------------------

(1)  Adjustable and floating rate assets are included in the period in which
     interest rates are next scheduled to adjust rather than in the period in
     which they are due, and fixed rate assets are included in the periods in
     which they are scheduled to be repaid based on scheduled amortization, in
     each case adjusted to take into account estimated prepayments. Estimated
     prepayment statistics were obtained from the research department of a
     primary securities dealer. For fixed rate mortgages and mortgage-backed
     securities, annual prepayment rates from 7% to 25%, based on the coupon
     rate, were used.

                                       6

<PAGE>

(2)  Balances  have been reduced for loans in process and deferred loan fees and
     discounts  which  aggregated  to  $35.5  million  at  September  30,  1997.
     Nonperforming  loans  aggregating  $2.6 million were included in the within
     three month repricing period.
(3)  Fixed rate  mortgage-backed  securities include amortizing  securities that
     balloon 5 years and 7 years from original  issue date.  Balloon  securities
     amounted to $99.5 million at September 30, 1997.
(4)  The Company's negotiable order of withdrawal ("NOW") accounts, passbook
     savings accounts and money market deposit accounts are generally subject to
     immediate withdrawal. However, management considers a certain portion of
     these accounts to be core deposits having significantly longer effective
     maturities based on the Company's retention of such deposit accounts in
     changing interest rate environments. NOW accounts, passbook savings
     accounts and money market deposit accounts are assumed to be withdrawn at
     annual rates of 40%, 60% and 80%, respectively, of the declining balance of
     such accounts during the period shown. Management believes the rates are
     indicative of expected withdrawal rates in a rising interest rate
     environment. If all of the Company's NOW accounts, passbook savings
     accounts and money market deposit accounts had been assumed to be subject
     to repricing within one year, the cumulative one-year deficiency of
     interest-earning assets to interest-bearing liabilities would have been
     $211.4 million or 18.69% of total assets.
(5)  The Company  does not  purchase,  sell or enter into  derivative  financial
     instruments or derivative commodity  instruments as defined by Statement of
     Financial  Accounting  Standards  No. 119,  "Disclosures  about  Derivative
     Financial Instruments and Fair Value of Financial Instruments."
                                                           ---------------

Certain  shortcomings  are  inherent in the method of analysis  presented in the
foregoing table.  For example,  although certain assets and liabilities may have
similar maturities or periods to repricing,  they may react in different degrees
to changes in market interest  rates.  Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates,  while  interest  rates on other  types may lag behind  changes in market
rates.  Additionally,  certain  assets,  such as adjustable rate mortgage loans,
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate  significantly  from
those assumed in calculating the table.  Finally,  the ability of many borrowers
to service their debt may decrease in the event of an interest rate increase.

Analysis of Net Interest Income

The Company's  earnings have historically  depended primarily upon the Company's
net interest income,  which is the difference  between interest income earned on
its loans and investments  ("interest-earning  assets") and interest paid on its
deposits and any borrowed funds ("interest-bearing  liabilities").  Net interest
income is affected by (i) the difference between rates of interest earned on the
Company's  interest-earning  assets  and  rates  paid  on  its  interest-bearing
liabilities  ("interest  rate  spread")  and (ii) the  relative  amounts  of its
interest- earning assets and interest-bearing liabilities.

The  following  tables  present an analysis of certain  aspects of the Company's
operations  during the periods  indicated.  The first table presents the average
balances of, and the interest and dividends  earned or paid on, each major class
of interest-earning assets and interest-bearing  liabilities.  No tax equivalent
adjustments were made.  Average balances  represent daily average balances.  The
yields and costs include fees which are considered adjustments to yields.

                                       7
<PAGE>
<TABLE>
<CAPTION>
                                                          Years Ended September 30,
                                          1997                       1996                        1995
                                          ----                       ----                        ----
                                Average  Interest & Yield/ Average  Interest &  Yield/  Average Interest &   Yield/
                                Balance  Dividends  Rate   Balance  Dividends   Rate    Balance Dividends    Rate
                                -------  ---------  ----   -------  ---------   ----    -----------------    ----
                                                            (Dollars in thousands)
Assets:
Interest-earning assets(1):
<S>                          <C>          <C>      <C>     <C>        <C>      <C>     <C>        <C>        <C>
Federal funds sold .......   $    7,404   $   399    5.39% $ 12,679   $   669    5.28% $  8,224   $   457      5.56%
Interest-bearing deposits        29,674     1,614    5.44    24,062     1,320    5.49    24,899     1,412      5.67
Investment securities ....       63,743     3,866    6.07    39,825     2,462    6.18    43,375     2,352      5.42
Mortgage-backed
  securities .............      153,347    10,088    6.58   152,895    10,155    6.64   147,482     9,613      6.52
Mortgage loans ...........      718,319    60,000    8.35   620,166    52,237    8.42   542,127    44,883      8.28
Other loans ..............       94,634     8,847    9.35    79,875     7,514    9.41    65,308     6,167      9.44
                                 ------     -----    ----    ------     -----    ----    ------     -----      ----
Total interest-earning
  assets .................    1,067,121    84,814    7.94   929,502    74,357    8.00   831,415    64,884      7.81
Total noninterest earning
  assets....................     29,575                      24,481                      20,174
                                 ------                      ------                      ------
Total assets................  1,096,696                     953,983                     851,589
                              =========                     =======                     =======

Liabilities and
Stockholders' Equity:
Interest-bearing liabilities
  Deposits:
    Transaction accounts....  $ 138,721   $ 1,896    1.37  $118,398   $ 1,724    1.46% $108,558   $1,782       1.64%
    Passbook savings........     77,707     1,356    1.75    79,617     1,506    1.89    85,615    1,718       2.01
    Official checks.........      5,612       ---     .00     6,400       ---     .00     4,250      ---        .00
    Certificate savings.....    663,143    35,892    5.41   570,518    31,210    5.47   500,941   26,127       5.22
                                -------    ------    ----   -------    ------    ----   -------   ------       ----
    Total deposits..........    885,183    39,144    4.42   774,933    34,440    4.44   699,364   29,627       4.24
  FHLB advances.............     99,342     5,962    6.00    75,096     4,593    6.12    58,178    3,546       6.10
  Other borrowings..........        561        53    9.48       857        81    9.47     1,160      107       9.27
                                    ---        --    ----       ---        --    ----     -----      ---       ----
Total interest-bearing
  liabilities...............    985,086    45,159    4.58   850,886    39,114    4.60   758,702   33,280       4.39
                                -------    ------    ----   -------    ------    ----   -------   ------       ----
Noninterest-bearing
  liabilities...............     21,045                      20,863                      20,167
                                 ------                      ------                      ------
Total liabilities...........  1,006,131                     871,749                     778,869
Stockholders' equity........     90,565                      82,234                      72,720
                                 ------                      ------                      ------
Total liabilities and
  stockholders' equity......  1,096,696                     953,983                     851,589
                              =========                     =======                     =======
Net interest income/
  interest rate spread (2)..             $ 39,655    3.36%           $ 35,243    3.40%            $31,604       3.42%
                       ==                ========                    ========                     =======            
Net interest-earning
 assets/net  interest
 margin (3).................   $ 82,035              3.72%    $78,616            3.79%  $72,713                 3.80%
        ==                     ========                       =======                   =======                  
Interest-earning assets to
  interest-bearing liabilities                     108.33%                     109.24%                        109.58%
</TABLE>

(1)  Average balances and rates include nonaccruing loans.

(2)  Interest rate spread  represents the difference  between  weighted  average
     interest rates earned on  interest-earning  assets and the weighted average
     interest rates paid on interest-bearing liabilities.

(3)  Net  interest  margin  represents  net interest  income as a percentage  of
     average interest-earning assets.

                                ----------------

Rate/Volume  Analysis.  The  relationship  between  the  volume and rates of the
Company's  interest-earning  assets and interest-bearing  liabilities influences
the Company's net interest income.  The following table reflects the sensitivity
of the Company's  interest income and interest  expense to changes in volume and
in prevailing interest rates. For each category of  interest-earning  assets and
interest-bearing  liabilities,  information is provided on effects  attributable
to: (1)  changes  in volume  (changes  in volume  multiplied  by old rate);  (2)
changes in rate (changes in rate multiplied by old volume);  and (3) net change.
Changes  attributable  to the  combined  impact  of volume  and rates  have been
allocated proportionately to changes due to volume and changes due to rate.

                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                                  Years Ended September 30,
                                                                    Increase (Decrease)
                                     1997 vs. 1996                      1996 vs. 1995                  1995 vs. 1994
                                     -------------                      -------------                  -------------
(In thousands)
                              Volume       Rate         Net     Volume     Rate       Net    Volume      Rate       Net
                              ------       ----         ---     ------     ----       ---    ------      ----       ---
Interest income:
<S>                          <C>       <C>          <C>           <C>      <C>      <C>       <C>      <C>      <C>
  Interest-bearing
    deposits..............   $    21    $     3     $    24       $194     $(74)     $120     $(684)   $  910   $   226
  Investment securities...     1,424        (20)      1,404       (202)     312       110      (166)      412       246
  Mortgage-backed
    securities............        29        (96)        (67)       360      182       542     2,893       473     3,366
  Mortgage loans..........     8,259       (496)      7,763      6,681      673     7,354     2,524     1,170     3,694
  Nonmortgage loans:
    Commercial loans......        85        (72)         13         46     (110)      (64)       14       177       191
    Consumer loans........     1,289         31       1,320      1,305      106     1,411     1,021        56     1,077
                               -----         --       -----      -----      ---     -----     -----        --     -----
Total interest income.....    11,107       (650)     10,457      8,384    1,089     9,473     5,602     3,198     8,800
                              ------       ----      ------      -----    -----     -----     -----     -----     -----

Interest expense:
  Deposits:
    Transaction accounts..   $   278    $  (106)    $   172       $144    $(202)     $(58)    $(165)     $ 24     $(141)
    Passbook savings......       (33)      (117)       (150)      (114)     (98)     (212)     (225)        8      (217)
    Certificate savings...     5,013       (331)      4,682      3,806    1,277     5,083     2,903     3,657     6,560
                               -----       ----       -----      -----    -----     -----     -----     -----     -----
    Total deposits........     5,258       (554)      4,704      3,836      977     4,813     2,513     3,689     6,202
  FHLB advances...........     1,455        (86)      1,369      1,035       12     1,047       803       (31)      772
  Other borrowings........       (26)        (2)        (28)      ( 26)     ---       (26)       11        19        30
                                 ---         --         ---       - --                ---        --        --        --
Total interest expense....     6,687       (642)      6,045      4,845      989     5,834     3,327     3,677     7,004
                               -----       ----       -----      -----      ---     -----     -----     -----     -----

Net interest income.......   $ 4,420   $     (8)    $ 4,412    $ 3,539    $ 100   $ 3,639   $ 2,275   $  (479)  $ 1,796
                             =======   ========     =======    =======    =====   =======   =======   =======   =======
</TABLE>

                                       9
<PAGE>

Results of Operations
---------------------

Year Ended September 30, 1997 Compared to Year Ended September 30, 1996
-----------------------------------------------------------------------

General
-------

Net  income for the year  ended  September  30,  1997  increased  16.1% to $13.3
million or $2.66 per share, compared to $11.5 million or $2.32 per share for the
same period last year, excluding the one-time SAIF special assessment. Including
the one-time SAIF special  assessment,  net income for the year ended  September
30, 1996 was $8.6 million,  or $1.75 per share.  Net interest  income  increased
12.5% to $39.6  million for the year ended  September 30, 1997 compared to $35.2
million for the year ended  September  30,  1996.  This  increase  was due to an
increase in interest  income of $10.5 million  offset by an increase in interest
expense of $6.0  million.  Other  income  increased to $4.2 million for the year
ended  September  30, 1997 from $2.9  million for the year ended  September  30,
1996. Other expenses decreased to $21.1 million for the year ended September 30,
1997 from $24.1 million for the year ended  September 30, 1996, due primarily to
the one-time SAIF special assessment of $4.5 million.

Interest Income
---------------

Total interest  income  increased to $84.8 million for the year ended  September
30, 1997 from $74.3  million for the year ended  September 30, 1996, as a result
of an increase in average interest-earning assets that was partially offset by a
decrease in the average interest rate. Average interest-earning assets increased
to $1.067 billion for the year ended  September 30, 1997 from $929.5 million for
the year ended  September 30, 1996. The average rate earned on  interest-earning
assets  decreased to 7.94% for the year ended  September 30, 1997 from 8.00% for
the year ended September 30, 1996, a decrease of 6 basis points. Interest income
on loans  increased  $9.0 million to $68.8 million for the year ended  September
30, 1997 from $59.8 million for the year ended September 30, 1996. This increase
was a result of a $112.9  million  increase  in the  average  balance  to $812.9
million  in 1997 from  $700.0  million  in 1996 that was  partially  offset by a
decrease of 7 basis  points in the average  yield to 8.47% in 1997 from 8.54% in
1996.  The  increase  in the  average  balance of total  loans was mainly due to
significant growth in the residential loan portfolio  resulting from high levels
of loan  originations  and the acquisition of $62 million of loans from Treasure
Coast  Bank,  FSB in  June,  1996.  Interest  income  on  investment  securities
increased  $1.4  million to $3.9 million for the year ended  September  30, 1997
from $2.5  million for the year ended  September  30,  1996.  This  increase was
primarily the result of a $23.9 million increase in the average balance to $63.7
million in 1997 from $39.8 million in 1996. The increase in the average  balance
of  investment  securities  was primarily due to the purchase of FHLB Notes with
the proceeds from new FHLB advances.

Interest Expense
----------------

Total interest  expense  increased to $45.1 million for the year ended September
30, 1997 from $39.1  million for the year ended  September 30, 1996, as a result
of an increase in average interest-bearing liabilities. Average interest-bearing
liabilities  increased to $985.1  million for the year ended  September 30, 1997
from $850.9 million for the year ended September 30, 1996. The average  interest
rate paid on interest-bearing liabilities was 4.58% for the year ended September
30, 1997 compared to 4.60% for the year ended  September 30, 1996, a decrease of
2 basis points.  Interest  expense on deposits  increased  $4.7 million to $39.1
million for the year ended  September  30, 1997 from $34.4  million for the year
ended  September  30, 1996.  This increase was a result of an increase of $110.3
million in the average  balance to $885.2 million in 1997 from $774.9 million in
1996  partially  offset by a decrease of 2 basis  points in the average  rate to
4.42% in 1997  from  4.44% in 1996.  The  increase  in the  average  balance  of
deposits reflects the acquisition of $70 million of deposits from Treasure Coast
Bank, FSB in June, 1996.  Interest expense on FHLB advances and other borrowings
increased  $1.3  million to $6.0 million for the year ended  September  30, 1997
from $4.7 million for the year ended  September 30, 1996.  This increase was the
result of an increase of $24.0  million in the average  balance to $99.9 million
in 1997 from $75.9 million in 1996  primarily  due to proceeds  from  short-term
advances taken in order to fund the purchase of FHLB Notes.

                                       10

<PAGE>

Provision for Loan Losses
-------------------------

The  provision  for loan  losses is  charged  to  operations  to bring the total
allowance for loan losses to a level considered  appropriate by management based
on historical  experience,  volume and type of lending conducted by the Company,
industry  standards,  the level and status of past due and nonperforming  loans,
the general economic  conditions of the Company's lending area and other factors
affecting collectibility of the Company's loan portfolio. The provision for loan
losses was $782,000 for the year ended  September  30, 1997 compared to a credit
of $76,000 for the year ended  September 30, 1996. The provision for loan losses
for the year ended September 30, 1997 was  principally  comprised of a charge of
approximately  $600,000  related  to an  increase  in the  level  of  classified
commercial  real estate  loans,  a charge of  approximately  $100,000  due to an
increase in classified consumer loans, and a charge of approximately  80,000 for
unidentified  but probable  losses due to growth in the consumer loan portfolio.
The credit to the  provision  for loan losses for the year ended  September  30,
1996 was  principally  comprised  of a credit to the  provision  of $1.7 million
related to a decrease in the level of  classified  assets  compared to the prior
year and $100,000 of additional  net  recoveries on loans during the year.  This
was partially offset by a charge to the provision of approximately  $1.6 million
due to growth  primarily in the commercial  real estate and consumer  portfolios
(which  excludes loan growth  associated with the acquisition of Treasure Coast)
and due to the Company's  perception  and the inherent risk of loans  originated
for these portfolios during the period, as well as the additional  inherent risk
of loans acquired as a result of the acquisition of Treasure Coast; and $200,000
related to  downgrades  of certain  commercial  real  estate  loans  within pass
grades. The allowance for loan losses was at $11.7 million and $11.0 million for
September 30, 1997 and 1996, respectively. The allowance was 1.4% of total loans
at both September 30, 1997 and 1996, respectively,  and was 117.5% and 129.4% of
classified loans at September 30, 1997 and 1996,  respectively.  The Company had
net charge offs of $107,000 for the year ended  September  30, 1997  compared to
net  recoveries  of $124,000 for the year ended  September  30, 1996.  While the
Company's  management uses available  information to recognize  losses on loans,
future  additions to the allowance may be necessary based on changes in economic
conditions.


Other Income
------------

Other  income  increased  by $1.3  million  to $4.2  million  for the year ended
September 30, 1997 from $2.9 million for the year ended  September 30, 1996, due
primarily  to an increase of  $511,000  in other fees and  service  charges,  an
increase  of $446,000  in income  from real  estate  operations,  an increase of
$228,000  in gain on sale of  mortgage  loans and a $239,000  gain on sale of an
undeveloped parcel of land. Other fees and service charges,  primarily from fees
and service charges on deposit  products,  was $3.3 million and $2.8 million for
the years ended  September  30, 1997 and 1996,  respectively.  This increase was
primarily due to the growth in deposits.  Income from real estate operations was
$145,000 for the year ended  September 30, 1997,  compared to a loss of $301,000
in the  comparable  period in 1996.  Gain on sale of mortgage loans was $188,000
for the year ended  September  30,  1997,  compared  to a loss of $40,000 in the
comparable period in 1996.

Other Expense
-------------

Other  expense  decreased  by $3.0  million to $21.1  million for the year ended
September 30, 1997 from $24.1 million for the year ended September 30, 1996. The
decrease  was  primarily  due to a  decrease  of $5.5  million  in SAIF  deposit
insurance  premiums due to the special  assessment  of $4.5 million for the year
ended September 30, 1996 and a decrease of $1.0 million in premiums for the year
ended  September  30,  1997  due  to  lower   assessment  rates  resulting  from
recapitalization of the SAIF. Other changes included an increase of $1.2 million
in compensation and benefits,  an increase of $414,000 in occupancy  expense and
an increase  of $804,000 in other  expense.  The  increase in  compensation  and
benefits is due primarily to additional  staff required to support the growth in
loans and deposits and an increase in amortization  of stock benefit plans.  The
increase  in other  expense is  primarily  due to an  increase  of  $164,000  in
amortization of goodwill,  an increase of $207,000 in advertising and promotion,
an increase of $96,000 in data  processing  services  and $52,000 in filing fees
primarily relating to the organization of the mid-tier holding company.

                                       11

<PAGE>

Income Tax Expense
------------------

Income tax expense  increased by $3.2 million to $8.6 million for the year ended
September 30, 1997 from $5.4 million for the year ended  September 30, 1996, due
primarily to an increase in pretax  accounting  income,  net of the $1.7 million
tax  effect of the  one-time  SAIF  special  assessment  included  in 1996.  The
effective tax rates were 39% for the both the years ended September 30, 1997 and
1996.

Year Ended September 30, 1996 Compared to Year Ended September 30, 1995
-----------------------------------------------------------------------

General
-------

Net income for the year ended  September  30, 1996,  excluding the one-time SAIF
special  assessment of $2.8 million after tax,  increased 16.0% to $11.5 million
or $2.32 per  share,  compared  to $9.9  million or $2.03 per share for the year
ended September 30, 1995.  Including the one-time SAIF special  assessment,  net
income for the year ended  September  30,  1996 was $8.6  million,  or $1.75 per
share.  Net interest income  increased 11.5% to $35.2 million for the year ended
September 30, 1996  compared to $31.6  million for the year ended  September 30,
1995.  This  increase was due to an increase in interest  income of $9.4 million
and an increase in  interest  expense of $5.8  million.  Other  income  remained
constant  at $2.9  million for both of the years  ended  September  30, 1996 and
1995. Other expenses increased to $24.1 million for the year ended September 30,
1996 from $18.2 million for the year ended  September 30, 1995, due primarily to
the one-time SAIF special assessment of $4.5 million.

Interest Income
---------------

Total interest  income  increased to $74.3 million for the year ended  September
30, 1996 from $64.9  million for the year ended  September 30, 1995, as a result
of an increase in average interest-earning assets and an increase in the average
interest rate. Average  interest-earning  assets increased to $929.5 million for
the year  ended  September  30,  1996 from  $831.4  million  for the year  ended
September 30, 1995. The average rate earned on interest-earning assets increased
to 8.00% for the year  ended  September  30,  1996 from 7.81% for the year ended
September  30, 1995, an increase of 19 basis  points.  Interest  income on loans
increased  $8.7 million to $59.8  million for the year ended  September 30, 1996
from $51.1 million for the year ended  September  30, 1995.  This increase was a
result of a $92.6 million  increase in the average  balance to $700.0 million in
1996 from  $607.4  million  in 1995 and an  increase  of 14 basis  points in the
average  yield to 8.54% in 1996 from 8.40% in 1995.  The increase in the average
balance of total loans was mainly due to significant  growth in the  residential
loan  portfolio  resulting  from  high  levels  of  loan  originations  and  the
acquisition of $62 million of loans from Treasure Coast Bank, FSB in June, 1996.
Interest  income  on  mortgage-backed  securities  increased  $541,000  to $10.2
million for the year ended  September  30,  1996 from $9.6  million for the year
ended  September  30, 1995.  This  increase was  primarily  the result of a $5.4
million  increase in the average  balance to $152.9  million in 1996 from $147.5
million  in  1995.  The  increase  in the  average  balance  of  mortgage-backed
securities  was  primarily  due to the  purchase of  adjustable  and  seven-year
balloon  securities  with the proceeds from maturing  investment  securities and
proceeds from new FHLB advances.

Interest Expense
----------------

Total interest  expense  increased to $39.1 million for the year ended September
30, 1996 from $33.3  million for the year ended  September 30, 1995, as a result
of an increase in average  interest-bearing  liabilities  and an increase in the
average  rate paid.  Average  interest-bearing  liabilities  increased to $850.9
million for the year ended  September 30, 1996 from $758.7  million for the year
ended  September 30, 1995.  The average  interest rate paid on  interest-bearing
liabilities  was 4.60% for the year ended  September  30, 1996 compared to 4.39%
for the year ended September 30, 1995, an increase of 21 basis points.  Interest
expense on deposits  increased  $4.8 million to $34.4 million for the year ended
September  30, 1996 from $29.6  million for the year ended  September  30, 1995.
This  increase  was a result of an  increase  of $75.6  million  in the  average
balance to $775.0 million in 1996 from $699.4 million in 1995 and an increase of
20 basis  points in the  average  rate to 4.44% in 1996 from 4.24% in 1995.  The
increase in the average  balance of deposits  reflects  the  acquisition  of $70
million of deposits  from  Treasure  Coast  Bank,  FSB in June,  1996.  Interest
expense on FHLB  advances and other  borrowings  increased  $1.0 million to $4.7
million for the year ended  September  30,  1996 from $3.7  million for the year
ended  September 30, 1995.  This increase was the result of an increase of $16.6
million in the average  balance to $75.9  million in 1996 from $59.3  million in
1995.

                                       12

<PAGE>

Provision for Loan Losses
-------------------------

The  provision  for loan  losses is  charged  to  operations  to bring the total
allowance for loan losses to a level considered  appropriate by management based
on historical  experience,  volume and type of lending conducted by the Company,
industry  standards,  the level and status of past due and nonperforming  loans,
the general economic  conditions of the Company's lending area and other factors
affecting collectibility of the Company's loan portfolio. The provision for loan
losses was a credit of $76,000 for the year ended September 30, 1996 compared to
an expense of $460,000 for the year ended  September 30, 1995. The credit to the
provision for the year ended September 30, 1996 was  principally  comprised of a
credit to the  provision of $1.7  million  related to a decrease in the level of
classified  assets  compared to the prior year and  $100,000 of  additional  net
recoveries on loans during the year.  This was  partially  offset by a charge to
the  provision  of  approximately  $1.6  million due to growth  primarily in the
commercial  real estate and  consumer  portfolios  (which  excludes  loan growth
associated  with the  acquisition  of Treasure  Coast) and due to the  Company's
perception and the inherent risk of loans originated for these portfolios during
the  period,  as well as the  additional  inherent  risk of loans  acquired as a
result of the acquisition of Treasure Coast;  and $200,000 related to downgrades
of certain  commercial  real estate  loans  within  pass  grades.  In 1995,  the
provision  of $460,000  resulted  primarily  from a $1.1  million  charge to the
provision due to growth in the  commercial  real estate  portfolio and increased
allowance  levels  provided  on more  recent  originations,  and a charge to the
provision of $30,000 due to an increase in the level of classified assets.  Such
charges  were  reduced  by a  reduction  of  approximately  $500,000  related to
upgrades of loans within pass grades and $190,000 in net loan recoveries  during
the  period.  The  allowance  for loan  losses was at $11.0  million  and $ 10.1
million for September 30, 1996 and 1995, respectively.  An allowance of $885,000
was acquired as part of the Treasure  Coast  Acquisition  in 1996. The allowance
was 1.4% and 1.6% of total loans at September  30, 1996 and 1995,  respectively,
and was 129.4% and 57.6% of  classified  loans at  September  30, 1996 and 1995,
respectively.  The Company had net  recoveries  of $124,000 and $188,000 for the
years ended  September  30,  1996 and 1995,  respectively.  While the  Company's
management  uses  available  information  to recognize  losses on loans,  future
additions  to the  allowance  may be  necessary  based on  changes  in  economic
conditions.


Other Income
------------

Other  income  remained  constant  at $2.9  million  for  both the  years  ended
September 30, 1996 and 1995.  Losses from real estate  operations  were $301,000
for the year ended  September  30,  1996  compared to $40,000 for the year ended
September 30, 1995.  Other income,  primarily  from fees and service  charges on
deposit products was $2.8 million and $2.6 million for the years ended September
30, 1996 and 1995, respectively.

Other Expense
-------------

Other  expense  increased  by $5.9  million to $24.1  million for the year ended
September 30, 1996 from $18.2 million for the year ended September 30, 1995. The
increase was  primarily  due to the one-time  SAIF  special  assessment  of $4.5
million.  Other  changes  included an increase of $642,000 in  compensation  and
benefits, due primarily to wage increases,  and a $341,000 increase in occupancy
expense.

Income Tax Expense
------------------

Income tax expense  decreased  by  $526,000  to $5.4  million for the year ended
September 30, 1996 from $5.9 million for the year ended  September 30, 1995, due
primarily  to  the  $1.7  million  tax  effect  of  the  one-time  SAIF  special
assessment.  The  effective  tax  rates  were  39% and 38% for the  years  ended
September 30, 1996 and 1995, respectively.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

On January 6, 1994 the  Company  closed its  initial  public  offering of common
stock  with the sale to  persons  (other  than its mutual  holding  company)  of
2,239,831 shares at $10.00 per share.  The net proceeds of  approximately  $21.3
million were used for general corporate purposes,  including  investment in home
mortgages and other investments in the ordinary course of business.

The Company is required to maintain  minimum  levels of liquid assets as defined
by OTS  regulations.  This  requirement,  which  varies  from  time to time,  is
currently 5% of deposits and short-term  borrowings.  It is the Company's policy
to maintain  average  monthly  levels of liquid  assets at least 50 basis points
higher  than the  minimum  requirement,  primarily  as a part of its  asset  and
liability  management  strategy  of  increasing  its  levels  of  rate-sensitive
inter-est-earning  assets. At September 30, 1997, the Company had federal funds,
cash and  investments  which  exceeded the minimum  regulatory  requirement.  In
addition,  the Company had certain  investments  in  mortgage-backed  securities
aggregating  $55.0  million  which  also  qualify  as  liquid  assets  under OTS
regulations.  The Company  intends to hold such  investments in  mortgage-backed
securities until maturity.  However,  such investments may be used as collateral
for borrowing as such need arises.  The Company's total liquidity position as of
September  30,  1997 was $141  million,  which was $94  million in excess of the
minimum  requirement  of $47.0  million.  The  Company's  short  term  liquidity
position at that date amounted to $56 million which was $47 million in excess of
the minimum requirement of $9 million.

                                       13
<PAGE>

The Company's primary sources of funds are deposits, amortization and prepayment
of loans and mortgage-backed securities, maturities of investment securities and
other short-term  investments,  and earnings and funds provided from operations.
The Company will consider  increasing its borrowings  from the Federal Home Loan
Bank of  Atlanta  from  time  to  time to  hedge  against  future  increases  in
prevailing  deposit  account  interest  rates.  In addition,  the Company  holds
unpledged fixed and adjustable rate  mortgage-backed  securities totaling $119.3
million at September 30, 1997 that could be used as collateral  under repurchase
transactions with securities dealers.  Repurchase  transactions serve as secured
borrowings and provide a source of short-term liquidity for the Company.

Net cash  provided  by the  Company's  operating  activities  (i.e.  cash  items
affecting net income) was $15.7 million,  $10.2  million,  and $11.1 million for
the years ended September 30, 1997, 1996 and 1995, respectively.

Net  cash  used by the  Company's  investing  activities  (i.e.  cash  receipts,
primarily from its investment securities,  mortgage-backed  securities, and loan
portfolios)  was $93.8 million,  $86.2 miilion,  and $85.9 million for the years
ended September 30, 1997, 1996 and 1995, respectively.

Net cash  provided by the Company's  financing  activities  (i.e.  cash receipts
primarily  from net  increases  in  deposits  and net FHLB  advances)  was $62.4
million, $86.0 million and $66.1 million for the years ended September 30, 1997,
1996,  and 1995,  respectively.  The increase in 1996 was  principally  due to a
$13.5  million  increase  in  deposits  and a  $10.0  million  increase  in FHLB
advances.

The Company's liquid assets consist primarily of investment securities,  federal
funds and cash.  At September  30, 1997,  the Company had liquid  assets of $141
million,  with loan commitments of $29.1 million  (consisting of unused lines of
credit to homebuilders and residential loan  commitments),  letters of credit of
$501,000 and unfunded  loans in process of $32.1 million (the latter  consisting
primarily of residential loans in process).

Impact of New Accounting Standards
----------------------------------

Earnings Per Share
------------------

In February,  1997, the FASB issued Statement of Financial  Accounting Standards
No. 128, "Earnings Per Share" ("Statement 128").  Statement 128 is effective for
financial  statements  issued  for  periods  ending  after  December  15,  1997.
Statement 128  establishes  standards for computing and presenting  earnings per
share  ("EPS"),  simplifies  the  standards  previously  found  in APB  No.  15,
"Earnings Per Share",  and makes them comparable to international EPS standards.
The Company will begin disclosing EPS in accordance with Statement 128 beginning
with the quarter ended December 31, 1997.

Reporting Comprehensive Income
------------------------------

In June, 1997, the FASB issued Statement of Financial  Accounting  Standards No.
130,  "Reporting  Comprehensive  Income"  ("Statement  130").  Statement  130 is
effective  for fiscal years  beginning  after  December 15, 1997.  Statement 130
establishes  standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.  Statement 130
requires  all items  recognized  under  accounting  standards as  components  of
comprehensive  income  to  be  reported  in a  financial  statement  with  equal
prominence as other  financial  statements.  Such statement will be presented by
the Company beginning with the quarter ended December 31, 1998.

Disclosures about Segments of an Enterprise and Related Information
-------------------------------------------------------------------

In June, 1997, the FASB issued Statement of Financial  Accounting  Standards No.
131,  "Disclosures  about  Segments of an  Enterprise  and Related  Information"
("Statement  131").  Statement  131 is  effective  for periods  beginning  after
December 15, 1997.  Statement 131 establishes  standards for the way that public
business  enterprises report information about operating segments,  based on how
the  enterprise  defines  such  segments.  The  Company  is  required  to report
operating  segment  information,  to  the  extent  such  segments  are  defined,
beginning with the year ended September 30, 1999.

                                       14

<PAGE>

Regulatory Matters
------------------

On September 30, 1996,  President Clinton signed The Deposit Insurance Funds Act
of 1996,  which is intended to recapitalize  the Savings  Association  Insurance
Fund ("SAIF") and  substantially  bridge the assessment rate disparity  existing
between SAIF and Bank Insurance Fund insured institutions. The new law subjected
institutions with  SAIF-assessable  deposits,  including the Bank, to a one-time
assessment of 65.7 basis points of assessable deposits as of March 31, 1995, and
provides for, among other things, a sharing of FICO bond obligation  fundings by
banks and thrifts and the eventual  merger of the Bank  Insurance  Fund with the
SAIF.  The  Bank's  one-time  assessment  resulted  in  a  pre-  tax  charge  of
approximately  $4,552,000,  which  was paid on  November  27,  1996  and,  under
provisions  of the new law, was treated for tax  purposes as a fully  deductible
"ordinary and necessary  business expense" when paid.  Results of operations for
the year ended September 30, 1996 include a charge for this one-time assessment.
Additionally,  the Bank  recorded  a pre-tax  charge of  approximately  $450,000
related to the application of this assessment to deposits held by Treasure Coast
at March 31, 1995.  Such charge was  reflected as a cost of the  acquisition  of
Treasure Coast.

Year 2000 Considerations
------------------------

The  Company's  Year 2000 Action Plan (the "Action  Plan") was  presented to the
Board of  Directors on June 25, 1997.  The Action Plan was  developed  using the
guidelines outlined in the Federal Financial Institutions  Examination Council's
"The Effect of Year 2000 on Computer Systems" and is scheduled for completion by
December 31, 1998,  with only final  testing  remaining.  The Systems  Corporate
Steering  Committee is responsible  for the Year 2000 Action Plan with the Board
of  Directors  receiving  Year 2000  Executive  Progress  Reports on a quarterly
basis.

An OTS off-site  examination was conducted on September 30, 1997 and, based upon
the  examination  results,  the Company was progressing  satisfactorily  towards
completing the Action Plan requirements.

Based upon current findings, the Company budgeted $712,000 for capital equipment
in Fiscal 1998 relating to Year 2000 software and hardware issues.

                                       15
<PAGE>




HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES








                                                    Independent Auditors' Report




Board of Directors
Harbor Florida Bancorp, Inc.:

We have audited the accompanying  consolidated statements of financial condition
of Harbor Florida  Bancorp,  Inc.,  (formerly  Harbor Federal  Savings Bank) and
subsidiaries  as of September  30, 1997 and 1996,  and the related  consolidated
statements  of  earnings,  stockholders'  equity  and cash flows for each of the
years in the  three-year  period ended  September 30, 1997.  These  consolidated
financial  statements are the  responsibility of Harbor Florida Bancorp,  Inc.'s
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Harbor  Florida
Bancorp,  Inc. and  subsidiaries at September 30, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended September 30, 1997 in conformity with generally accepted accounting
principles.



                                                       KPMG Peat Marwick LLP




West Palm Beach, Florida
November 14, 1997

                                       16
<PAGE>



                  HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
                 Consolidated Statements of Financial Condition
                    (Dollars in thousands except share data)

September 30, 1997 and 1996
                                                           1997           1996
                                                           ----           ----
Assets                                                  (Dollars in thousands)
Cash and amounts due from 
     depository institutions .....................   $    16,899    $    16,137
Interest-bearing deposits in
     other banks .................................        15,736         16,350
Federal funds sold ...............................           250         16,075
Investment securities held to
     maturity (estimated market value of
     $4,993 in 1997 and $20,016 in 1996) .........         5,000         20,000
Investment securities available for sale
     (estimated market value of $47,553 in
     1997 and $33,493 in 1996) ...................        47,553         33,493
Mortgage-backed securities held to
     maturity (estimated market value
     of $178,954 in 1997 and $153,288 in 1996) ...       176,854        153,293
Loans held for sale (estimated market
     value of $144 in 1997 and $4,870 in 1996) ...           141          4,870
Loans, net .......................................       834,270        765,019
Accrued interest receivable ......................         7,033          6,621
Real estate owned ................................         2,314          3,118
Premises and equipment ...........................        13,313         10,543
Federal Home Loan Bank stock .....................         7,595          7,158
Goodwill .........................................         3,045          3,587
Other assets .....................................         1,021          1,179
                                                           -----          -----
              Total assets .......................   $ 1,131,024    $ 1,057,443
                                                     ===========    ===========

Liabilities and Stockholders' Equity
Liabilities:
   Deposits ......................................   $   911,576    $   851,853
   Short-term borrowings .........................        30,100         25,000
   Long-term debt ................................        70,375         70,674
   Advance payments by borrowers
     for taxes and insurance .....................        15,924         15,212
   Income taxes payable ..........................           628            962
   Other liabilities .............................         5,619          8,910
                                                           -----          -----
              Total liabilities ..................     1,034,222        972,611
                                                       ---------        -------


Commitments and contingencies ....................          --             --

Stockholders' Equity:
   Preferred stock; $.01 par value; authorized
     1,000,000 shares; none issued and outstanding          --             --
   Common stock; $.01 par value; authorized
     13,000,000 shares; issued and outstanding
     4,973,428 shares at September 30, 1997 and
     4,934,454 shares at September 30, 1996 ......            50             49
   Paid-in capital ...............................        26,876         25,339
   Retained earnings, substantially restricted ...        71,203         60,893
   Common stock purchased by:
       Employee stock ownership plan (ESOP) ......          (374)          (674)
       Recognition and retention plans (RRP) .....          --              (53)
       Deferred compensation plan ................          (946)          (673)
   Net unrealized loss on investment securities
     available for sale, net of income taxes .....            (7)           (49)
                                                              --            --- 
            Total stockholders' equity ...........        96,802         84,832
                                                          ------         ------

            Total liabilities and stockholders'
                equity                                $1,131,024     $1,057,443
                                                      ==========     ==========

    See accompanying notes to consolidated financial statements.

                                       17
<PAGE>
                  HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
                       Consolidated Statements of Earnings
                  (Dollars in thousands except per share data)

Years ended September 1997, 1996, and 1995
                                                   1997       1996        1995
                                                   ----       ----        ----
Interest income:
   Loans ....................................   $ 68,847   $ 59,751    $ 51,050
   Investment securities ....................      3,866      2,462       2,352
   Mortgage-backed securities ...............     10,088     10,155       9,613
   Other ....................................      2,013      1,989       1,869
                                                   -----      -----       -----
       Total interest income ................     84,814     74,357      64,884
                                                  ------     ------      ------
Interest expense:
   Deposits .................................     39,144     34,440      29,627
   Other ....................................      6,015      4,674       3,653
                                                   -----      -----       -----
       Total interest expense ...............     45,159     39,114      33,280
                                                  ------     ------      ------
       Net interest income ..................     39,655     35,243      31,604
Provision for (recovery of) loan losses .....        782        (76)        460
                                                     ---        ---         ---
       Net interest income after provision for
            (recovery of) loan losses .......     38,873     35,319      31,144
                                                  ------     ------      ------
Other income:
   Other fees and service charges ...........      3,308      2,797       2,566
   Income (losses) from real estate operations       145       (301)        (40)
   Gain (loss) on sale of mortgage loans ....        188        (40)         91
   Other ....................................        572        429         290
                                                     ---        ---         ---
       Total other income ...................      4,213      2,885       2,907
                                                   -----      -----       -----
Other expenses:
   Compensation and employee benefits .......     11,931     10,690      10,048
   Occupancy ................................      3,046      2,632       2,291
   Professional fees ........................        599        527         699
   SAIF deposit insurance premium ...........        785      6,300       1,556
   Other ....................................      4,787      3,983       3,604
                                                   -----      -----       -----
       Total other expense ..................     21,148     24,132      18,198
                                                  ------     ------      ------

       Income before income taxes ...........     21,938     14,072      15,853
Income tax expense ..........................      8,611      5,432       5,958
                                                   -----      -----       -----
       Net income ...........................   $ 13,327   $  8,640    $  9,895
                                                ========   ========    ========
                                                                       
       Net income per share .................   $   2.66   $   1.75    $   2.03
                                                ========   ========    ========

See accompanying notes to consolidated financial statements.

                                       18
<PAGE>
                  HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
                             (Dollars in thousands)
Years ended September 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
                                                                                               Common 
                                                                      Common                    stock          Unreal.
                                                                      stock          Common    purch by      gain (loss)
                                                                      purch          stock     deferred     on securities
                                  Common     Paid-in    Retained        by           purch       comp        available
                                   stock     capital    earnings       ESOP         by RRP's     plan       for sale, net     Total
                                   -----     -------    --------       ----         --------     ----       -------------     -----
<S>                                     <C>   <C>          <C>       <C>             <C>         <C>              <C>      <C>    
Balance at September 30, 1994           $49   $23,975      $46,416   $(1,273)        $(481)      $(435)           $ -      $68,251
Net income                                -         -        9,895          -             -           -             -        9,895
Stock options exercised                   -       168            -          -             -           -             -          168
Amortization of award of ESOP
   and RRP's                              -       264            -        299           214           -             -          777
Tax benefit of RRP's                      -        48            -          -             -           -             -           48
Dividends paid                            -         -      (1,639)          -             -           -             -      (1,639)
Balance at September 30,  1995          $49   $24,455      $54,672     $(974)        $(267)      $(435)          $ -       $77,500
Net income                                -         -        8,640          -             -           -             -        8,640
Stock options exercised                   -       234            -          -             -           -             -          234
Amortization of award of ESOP
   and RRP's                              -       482            -        300           214           -             -          996
Tax benefit of RRP's                      -       137            -          -             -           -             -          137
Dividends paid                            -         -      (2,419)          -             -           -             -      (2,419)
Unrealized gain on securities
   available for sale, net                -         -            -          -             -           -           126          126
Change in unrealized gain
   (loss) on securities available
   for sale, net                          -         -            -          -             -           -         (175)        (175)
Tax benefit of non- qualified
   stock options                          -        31            -          -             -           -             -           31
Stock purchased by  deferred
   compensation  plan                     -         -            -          -             -       (238)             -        (238)
Balance at September 30,  1996          $49   $25,339      $60,893     $(674)        $( 53)      $(673)         $(49)      $84,832
Net income                                -         -       13,327          -             -           -             -       13,327
Stock options exercised                   1       389            -          -             -           -             -          390
Amortization of award of ESOP
   and RRP's                              -       856            -        300            53           -             -        1,209
Tax benefit of RRP's                      -       193            -          -             -           -             -          193
Dividends paid                            -         -      (3,017)          -             -           -             -      (3,017)
Change in unrealized gain
   (loss) on securities availabl          -
   for sale, net                e                   -            -          -             -           -            42           42
Tax benefit of non- qualified
   stock options                          -        99            -          -             -           -             -           99
Stock purchased by  deferred
   compensation  plan                     -         -            -          -             -       (273)            -         (273)
Balance at September 30, 1997           $50   $26,876      $71,203     $(374)           $ -      $(946)          $(7)      $96,802

See accompanying notes to consolidated financial statements.

</TABLE>
                                       19
<PAGE>
<TABLE>
<CAPTION>
                                      HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
                                          Consolidated Statements of Cash Flows
                                                 (Dollars in thousands)
Years ended September 30, 1997, 1996 and 1995
                                                               1997       1996       1995
                                                               ----       ----       ----
Cash provided by operating activities:
<S>                                                           <C>         <C>       <C>   
   Net income                                                 13,327      8,640     $9,895
   Adjustments to reconcile net income to net cash
       provided by operating activities:
       Amortization of stock benefit plans                     1,209        996        777
       Tax benefit of stock plans credited to capital            292        168         48
       Originations of loans held for sale                    (5,360)    (8,554)    (9,929)
       Proceeds from sale of loans held for sale               8,395      4,693      8,945
       Depreciation and amortization                           1,103      1,104      1,017
       Deferred income tax provision (benefit)                 1,781     (1,365)     1,559
       Increase in deferred loan fees and costs                1,133      1,047        881
       Amortization of deferred loan fees and costs             (926)      (973)    (1,090)
       Amortization of goodwill                                  236         71        ---
       Net accretion of other purchase accounting
            adjustments                                          (12)       (20)       ---
       Gain on sale of premises and equipment                   (239)       ---        ---
       (Gain) loss on sale of real estate owned                 (127)        39       (180)
       Accretion of discount on purchased loans                  (17)       (24)      (258)
       Increase in accrued interest receivable                  (411)      (184)    (1,277)
       Provision for (recovery of) loan losses                   782        (76)       460
       Provision for (recovery of) losses on real estate
            owned                                               (150)       117         35
       (Increase) decrease in other assets                       157       (143)        70
       Increase (decrease)  in income taxes payable             (334)       469        267
       Increase (decrease) in other liabilities               (5,098)     4,178       (165)

       Net cash provided by operating activities              15,741     10,183     11,055

Cash used by investing activities:
   Net increase in loans                                     (69,732)   (72,973)   (55,545)
   Purchase of mortgage-backed securities                    (61,769)   (29,265)   (65,609)
   Proceeds from principal repayments of mortgage-
       backed securities                                      38,031     40,068     20,780
   Proceeds from maturities of investment securities
       held to maturity                                       35,000        ---     25,042
   Purchase of investment securities held to maturity        (20,000)   (20,000)   (10,000)
   Proceeds from maturities of investment securities
       available for sale                                     15,533     10,595        ---
   Proceeds from sale of investment securities
       available for sale                                        ---      6,745        ---
   Purchase of investment securities available for sale      (29,500)   (17,939)       ---
   Proceeds from sale of real estate owned                     2,202      1,434      2,022
   Purchase of premises and equipment                         (4,068)    (1,423)    (2,020)
   Proceeds from sale of premises and equipment                  587      1,590        180
   FHLB stock purchase                                          (437)      (619)      (706)
   Purchase of Treasure Coast Bank, net of cash
       acquired                                                  ---     (4,451)       ---
   Other                                                         306        ---        ---

       Net cash used by investing activities                 (93,847)   (86,238)   (85,856)

                                       20
<PAGE>
                  HARBOR FLORIDA BANCORP, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                             (Dollars in thousands)

Years ended September 30, 1997, 1996 and 1995
                                                               1997       1996      1995
                                                               ----       ----      ----
Cash provided by financing activities:
   Net increase in deposits                                   59,816     60,679     47,152
   Net proceeds from short-term borrowings                     5,100     15,000        ---
   Repayments of long-term borrowings                           (299)      (300)      (300)
   Net proceeds from long-term borrowings                        ---     15,000     20,000
   Increase (decrease) in advance payments by
       borrowers for taxes and insurance                         712     (1,995)       697
   Stock dividend paid                                        (3,017)    (2,419)    (1,639)
   Common stock options exercised                                390        235        168
   Purchase of common stock by deferred
       compensation plan                                        (273)      (238)       ---

       Net cash provided by financing activities              62,429     85,962     66,078

       Net increase (decrease) in cash and cash
            equivalents                                      (15,677)     9,907     (8,723)

Cash and cash equivalents - beginning of period               48,562     38,655     47,378

Cash and cash equivalents - end of period                    $32,885     48,562   $ 38,655


Supplemental disclosures:

                                                             $45,159     39,324    $33,228
   Cash paid for:
       Interest
       Taxes                                                   6,918      6,161      4,114
   Noncash investing and financing activities:
       Additions to real estate acquired in settlement
            of loans through foreclosure                       2,459      2,879      1,312
       Sale of real estate owned financed by the
            Company                                            1,337      1,044        658
       Transfer of investment securities from held to
            maturity to available for sale                       ---     26,011        ---
       Change in unrealized gain (loss) on securities
            available for sale                                    68        (79)       ---
       Change in deferred taxes related to securities
            available for sale                                   (26)        29        ---
       Transfer of loans held for sale to held for             1,693        ---        ---
            maturity

</TABLE>

    See accompanying notes to consolidated financial statements.

                                       21
<PAGE>
                          HARBOR FLORIDA BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 1997, 1996, and 1995

(1)    Summary of Significant Accounting Policies
-------------------------------------------------

(a)    Reorganization

On June 25,  1997,  Harbor  Federal  Savings  Bank (the  "Bank")  completed  its
reorganization  into the  two-tier  form of mutual  holding  company  ownership.
Pursuant to the  reorganization,  the Bank is now the wholly owned subsidiary of
Harbor  Florida  Bancorp,  Inc. (the  "Company"),  a Delaware  corporation.  The
Company is the  majority  owned  subsidiary  of Harbor  Financial,  M.H.C.  (The
"Holding  Company").  Pursuant to the  reorganization,  each share of the Bank's
outstanding  common  stock  was  automatically  converted  into one share of the
Company's common stock. The reorganization was accounted for in a manner similar
to a pooling  of  interests  and did not  result in any  significant  accounting
adjustments.  The consolidated  financial statements for prior periods have been
restated to reflect the change in the par value of the  Company's  common  stock
from $1.00 to $.01 per share.  Certain  conditions were imposed upon the Company
by the OTS as part of the  reorganization,  including  requirements  to obtain a
federal  charter,  provisions  related to minority  stock  issuances,  and other
regulatory requirements.

The  Company  conducts no business  other than  holding the common  stock of the
Bank. Consequently, its net income is derived from the Bank.

(b)    Basis of Presentation

The  accompanying  consolidated  financial  statements  include the  accounts of
Harbor   Florida   Bancorp,   Inc.  and  its   wholly-owned   subsidiaries.   In
consolidation,  all significant intercompany accounts and transactions have been
eliminated.

The  consolidated  financial  statements  have been prepared in conformity  with
generally  accepted  accounting   principles.   In  preparing  the  consolidated
financial  statements,  management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
statement  of  financial  condition  and  revenues  and expenses for the period.
Actual results could differ significantly from those estimates.

Material  estimates that are particularly  susceptible to significant  change in
the near-term  relate to the  determination of the allowance for loan losses and
the valuation of real estate  acquired in  connection  with  foreclosures  or in
satisfaction of loans. In connection  with the  determination  of the allowances
for loan losses and real estate owned, management obtains independent appraisals
for significant properties.

As of  September  30,  1997,  substantially  all  of  the  Company's  loans  and
investment  in real estate  owned are secured by real estate in the  counties in
which the Company has branch  facilities:  St.  Lucie,  Indian  River,  Brevard,
Martin and Volusia Counties, Florida.  Accordingly,  the ultimate collectibility
of a substantial  portion of the Company's  loan portfolio and the recovery of a
substantial  portion of the carrying amount of real estate owned are susceptible
to changes in market conditions in the above counties.  Management believes that
the  allowances  for losses on loans and real estate owned are  adequate.  While
management  uses  available  information  to recognize  losses on loans and real
estate  owned,  future  additions to the  allowances  may be necessary  based on
changes in economic conditions, particularly in the above counties. In addition,
various regulatory  agencies,  as an integral part of their examination process,
periodically review the Company's allowances for losses on loans and real estate
owned.  Such  agencies  may require the Company to  recognize  additions  to the
allowances based on their judgments about  information  available to them at the
time of their examination.

(c)    Loan Origination and Commitment Fees and Related Costs

Loan fees and certain direct loan  origination  costs are deferred,  and the net
fee is recognized in income using the interest method over the contractual  life
of the loans. Commitment fees and costs relating to commitments whose likelihood
of  exercise  is  remote  are  recognized  over  the  commitment   period  on  a
straight-line  basis.  If the commitment is  subsequently  exercised  during the
commitment  period,  the  remaining  unamortized  commitment  fee at the time of
exercise is recognized over the life of the loan as an adjustment of yield.

(d)    Loan Interest Income

The Company reverses accrued interest related to loans which are 90 days or more
delinquent or placed on non-accrual  status. Such interest is recorded as income
when  collected.  Amortization  of net  deferred  loans  fees and  accretion  of
discounts  are  discontinued  for  loans  that  are 90 days or more  delinquent.
Interest  income on impaired  loans is  recognized  on an accrual  basis  unless
designated nonaccrual as noted above.

                                       22

<PAGE>

(e)    Investment and Mortgage Backed Securities

Bonds,  notes,  and other debt securities for which the Company has the positive
intent and  ability to hold to  maturity  are  reported  at cost,  adjusted  for
premiums and discounts that are recognized in interest income using the interest
method over the period to maturity.

Available-for-sale securities consist of bonds, notes, other debt securities and
certain  equity   securities  not  classified  as  trading   securities  nor  as
held-to-maturity  securities.  Available-for- sale securities include securities
that are being held for an unspecified period of time, such as those the Company
would consider  selling to meet liquidity needs or as part of the Company's risk
management  program.  Unrealized  holding  gains  and  losses,  net of  tax,  on
available-for-sale  securities  are  reported  as a  net  amount  in a  separate
component of stockholders' equity until realized.

Gains and losses on the sale of  available-for-sale  securities  are  determined
using the specific-identification method.

Declines in the fair value of individual held-to-maturity and available-for-sale
securities  below their cost that are other than temporary result in write-downs
of the individual  securities to their fair value.  The related  write-downs are
included in earnings as realized losses.

On November 15, 1995,  the Financial  Accounting  Standards  Board (FASB) issued
Special  Report  No.  155-B,  "A Guide to  Implementation  of  Statement  115 on
Accounting for Certain Investments in Debt and Equity Securities", (the "Special
Report"). Pursuant to the Special Report, the Company was permitted to conduct a
one-time reassessment of the classification of all securities held at that time.
Any reclassification from the held-to-maturity category made in conjunction with
that  reassessment  would not call into question an enterprise's  intent to hold
other debt  securities to maturity in the future.  The Company  undertook such a
reassessment and,  effective  December 31, 1995, all investment  securities were
reclassified   as   available   for  sale.   On  the   effective   date  of  the
reclassification,  the  securities  transferred  had a  carrying  value of $25.8
million  and an  estimated  fair  value of  $26.0  million,  resulting  in a net
increase  to  stockholders'  equity  for  the  net  unrealized  appreciation  of
$126,000, after deducting applicable income taxes of $76,000.

Prior to October 1, 1994, investment and mortgage-backed securities were carried
at cost,  adjusted for premiums and discounts  that were  recognized in interest
income using the interest method over the period to maturity.

The Company does not  purchase,  sell or utilize  off-balance  sheet  derivative
financial instruments or derivative commodity instruments.

At  September  30,  1997  and  1996,  the  Company  had no  commitments  to sell
investment or mortgage-backed securities.

(f)    Loans Receivable

Loans receivable are stated at unpaid principal balances, less loans in process,
the  allowances  for loan  losses and net  deferred  loan  origination  fees and
discounts.

Discounts on mortgage  loans are  amortized to income using the interest  method
over the remaining period to contractual maturity.

The Company  follows a consistent  procedural  discipline  and accounts for loan
loss  contingencies  in  accordance  with  Statement  of  Financial   Accounting
Standards No. 5, "Accounting for Contingencies"  (Statement 5). The following is
a  description  of how  each  portion  of  the  allowance  for  loan  losses  is
determined.

The  Company  segregates  the loan  portfolio  for loan loss  purposes  into the
following  broad  segments such as:  commercial  real estate;  residential  real
estate;  commercial  business;  and consumer  loan.  The Company  provides for a
general  allowance for losses inherent in the portfolio by the above categories,
which consists of two components.  General loss percentages are calculated based
upon historical  analyses. A supplemental portion of the allowance is calculated
for inherent  losses which probably exist as of the evaluation  date even though
they might not have been identified by the more objective processes used for the
portion  of the  allowance  described  above.  This is due to the  risk of error
and/or  inherent  imprecision  in the process.  This portion of the allowance is
particularly  subjective and requires  judgments  based on  qualitative  factors
which do not lend themselves to exact mathematical  calculations such as: trends
in delinquencies and nonaccruals;  migration trends in the portfolio;  trends in
volume,  terms,  and portfolio  mix; new credit  products  and/or changes in the
geographic  distribution  of those  products;  changes in lending  policies  and
procedures;  loan  review  reports on the  efficacy  of the risk  identification
process;  changes in the  outlook  for local,  regional  and  national  economic
conditions; concentrations of credit; and peer group comparisons.

                                       23

<PAGE>

Specific  allowances  are  provided  in the event that the  specific  collateral
analysis  on  each  classified  loan  indicates  that  the  probable  loss  upon
liquidation  of  collateral  would  be  in  excess  of  the  general  percentage
allocation. The provision for loan loss is debited or credited in order to state
the allowance for loan losses to the required level as determined above.

The Company considers a loan to be impaired when it is probable that the company
will be  unable to  collect  all  amounts  due,  both  principal  and  interest,
according  to the  contractual  terms  of the  loan  agreement.  When a loan  is
impaired,  the Company may measure  impairment based on (a) the present value of
the expected  future cash flows of the impaired  loan  discounted  at the loan's
original  effective  interest  rate,  (b) the  observable  market  price  of the
impaired   loans,   or   (c)   the   fair   value   of  the   collateral   of  a
collateral-dependent  loan.  The  Company  selects the  measurement  method on a
loan-by-loan basis, except for collateral-dependent  loans for which foreclosure
is probable must be measured at the fair value of the collateral.  In a troubled
debt   restructuring   involving  a  restructured  loan,  the  Company  measures
impairment by  discounting  the total  expected  future cash flows at the loan's
original effective rate of interest.

(g)    Loans Held for Sale

Mortgage  loans  originated  and  intended  for  sale in the  secondary  market,
comprised of 1-4 family  residential  loans, are carried at the lower of cost or
estimated market value, in the aggregate.  Net unrealized  losses are recognized
through a valuation allowance by charges to income.

In May 1995,  the FASB issued  Statement of Financial  Accounting  Standards No.
122,   "Accounting  for  Mortgage  Servicing  Rights"  ("Statement  122")  which
eliminated the accounting  distinction  between rights to service mortgage loans
for others that are  acquired  through  loan  origination  activities  and those
acquired  through  purchase  transactions.  Statement  122 requires an entity to
recognize  as  separate  assets  rights to service  mortgage  loans for  others,
however those servicing rights are acquired. Statement 122 requires the periodic
evaluation of capitalized mortgage servicing rights for impairment based on fair
value.  On October 1, 1996, this statement was  implemented  prospectively.  The
impact of Statement 122 upon implementation was not significant to the Company's
financial condition or results of operations upon adoption. Effective January 1,
1997,  Statement of Financial  Accounting  Standards  No. 125,  "Accounting  for
Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities"
("Statement 125") superseded  Statement 122. The impact of the implementation of
Statement  125 was not  significant  to the  Company's  financial  position  and
results of operations upon adoption.

(h)    Real Estate Owned

Real estate properties  acquired through, or in lieu of, loan foreclosure are to
be sold and are  initially  recorded  at fair  value at the date of  foreclosure
establishing a new cost basis.  After  foreclosure,  valuations are periodically
performed by management  and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from operations and
changes in the  valuation  allowance  are included in income  (losses) from real
estate operations.

(i)    Premises and Equipment

Premises  and  equipment  are  carried  at cost less  accumulated  depreciation.
Depreciation of premises and equipment is provided on the  straight-line  method
over the estimated useful lives of the related assets. Estimated lives are three
to fifty  years  for  buildings  and  improvements  and  three to ten  years for
furniture  and   equipment.   Leasehold   improvements   are  amortized  on  the
straight-line  method  over the  shorter of the  remaining  term of the  related
leases or their estimated useful lives.

Maintenance and repairs are charged to expense as incurred and  improvements are
capitalized.  The cost and  accumulated  depreciation  relating to premises  and
equipment retired or otherwise  disposed of are eliminated from the accounts and
any resulting gains or losses are credited or charged to income.

                                       24

<PAGE>

(j)    Goodwill

Goodwill is being amortized on a straight-line  basis over its estimated  useful
life of 15 years.  Goodwill is evaluated by management for  impairment  whenever
events or changes in circumstances indicate that the carrying amount of goodwill
may not be recoverable based on facts and circumstances  related to the value of
net assets acquired that gave rise to the goodwill.

(k)    Income Taxes

The Company  uses the asset and  liability  method to account for income  taxes.
Under the asset and liability  method,  deferred income taxes are recognized for
the tax consequences of "temporary  differences" by applying  enacted  statutory
tax rates  applicable  to future  years to  differences  between  the  financial
statement carrying amounts and the tax basis of existing assets and liabilities.
The effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.

The tax bad debt reserve method currently  available to thrift  institutions was
repealed for the Company for the year  beginning  October 1, 1996.  As a result,
the  Company  must change from the  reserve  method to the  specific  charge-off
method to compute its bad debt deduction.

The Company is required  generally to recapture into income for tax purposes the
portion of its bad debt  reserves  (other than the  supplemental  reserve)  that
exceeds its base year  reserves  (i.e.,  its tax  reserves for the last tax year
beginning  before  1988).  For  financial  statement  purposes,  the Company has
previously  provided  deferred  taxes on the  amount of the bad debt  reserve in
excess of the base  year.  Such  reserves  subject  to  recapture  and base year
reserves  were  approximately  $7.1 million and $14.5  million at September  30,
1997, respectively.

The recapture  amount  resulting from the change in the method of accounting for
its bad debt reserves  generally will be taken into taxable income ratably (on a
straight-line basis) over a six-year period. If the Company meets a "residential
loan  requirement",  as defined for a tax year  beginning  in 1996 or 1997,  the
recapture of the reserves will be suspended  for such tax year.  The Company met
such requirement for the tax year beginning October 1, 1996.

Certain  events,  as defined,  will still  trigger a recapture  of the base year
reserve. However, the base year will not be recaptured if a thrift converts to a
bank  charter  or is merged  into a bank.  The base year  reserves  also  remain
subject to income tax penalty  provisions  which, in general,  require recapture
upon certain stock redemptions of, and excess distributions to, shareholders.

(l)    Pension Plan

The  Company's  policy is to fund  pension  costs as they accrue based on normal
cost.

(m)    Stock-Based Compensation

In October,  1995, the FASB issued Statement of Financial  Accounting  Standards
No.  123,  "Accounting  for Stock  Based  Compensation"  (Statement  123).  This
standard  allows the use of either  the fair value  based  method  described  in
Statement 123 or the intrinsic value based method  prescribed by APB Opinion No.
25, "Accounting for Stock Issued to Employees." ("APB 25")
 The Company has elected to  continue  accounting  for stock based  compensation
under the APB 25 method and disclose the pro-forma impact of Statement 123.

(n)    Statement of Cash Flows

Cash equivalents  include amounts due from banks,  interest-bearing  deposits in
other banks and  Federal  funds sold.  For  purposes of cash flows,  the Company
considers  all highly liquid debt  instruments  with  original  maturities  when
purchased of three months or less to be cash equivalents.

(o)    Net Income Per Share

Net income  per share  totaled  $2.66,  $1.75 and $2.03  based  upon  5,006,312,
4,947,108 and 4,880,054  weighted average number of common and common equivalent
shares  outstanding  during the years ended September 30, 1997,  1996, and 1995,
respectively.

(p)    Reclassification

Certain amounts included in the 1996 and 1995 consolidated  financial statements
have been reclassified in order to conform to the 1997 presentation.

                                       25

<PAGE>

(q)    Derivative Instruments

The  Company  does  not  purchase,  sell  or  enter  into  derivative  financial
instruments  or  derivative  commodity  instruments  as defined by  Statement of
Financial Accounting Standards No. 119,  "Disclosures about Derivative Financial
Instruments and Fair Value of Financial Instruments."

(r)    New Accounting Pronouncements

In June, 1996, the FASB issued Statement of Financial  Accounting  Standards No.
125  ("Statement  125"),  "Accounting  for  Transfers and Servicing of Financial
Assets and  Extinguishments  of  Liabilities."  Statement 125, which  superseded
Statement 122 as of January 1, 1997, provides accounting and reporting standards
for  transfers  and  servicing  of  financial  assets  and   extinguishment   of
liabilities  based on a  financial-components  approach that focuses on control.
Statement 125 was effective for transfers and servicing of financial  assets and
extinguishments  of  liabilities  occurring  on or after  January 1, 1997 and is
prospectively  applied.  Implementation of Statement 125 did not have a material
impact on the financial position or the results of operations of the Company.

In February,  1997, the FASB issued Statement of Financial  Accounting Standards
No. 128, "Earnings Per Share" ("Statement 128").  Statement 128 is effective for
financial  statements  issued  for  periods  ending  after  December  15,  1997.
Statement 128  establishes  standards for computing and presenting  earnings per
share  ("EPS"),  simplifies  the  standards  previously  found  in APB  No.  15,
"Earnings Per Share",  and makes them comparable to international EPS standards.
The Company will begin disclosing EPS in accordance with Statement 128 beginning
with the quarter ended December 31, 1997.

In June, 1997, the FASB issued Statement of Financial  Accounting  Standards No.
130,  "Reporting  Comprehensive  Income"  ("Statement  130").  Statement  130 is
effective  for fiscal years  beginning  after  December 15, 1997.  Statement 130
establishes  standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.  Statement 130
requires  all items  recognized  under  accounting  standards as  components  of
comprehensive  income be reported in a financial statement with equal prominence
as other financial  statements.  Such statement will be presented by the Company
beginning with the quarter ended December 31, 1998.

In June, 1997, the FASB issued Statement of Financial  Accounting  Standards No.
131,  "Disclosures  about  Segments of an  Enterprise  and Related  Information"
("Statement  131").  Statement  131 is  effective  for periods  beginning  after
December 15, 1997.  Statement 131 establishes  standards for the way that public
business  enterprises report information about operating segments,  based on how
the  enterprise  defines  such  segments.  The  Company  is  required  to report
operating  segment  information,  to  the  extent  such  segments  are  defined,
beginning with the year ended September 30, 1999.

                                       26

<PAGE>

2).    Investment and Mortgage-backed Securities
------------------------------------------------

The amortized cost and estimated market value of investment and  mortgage-backed
securities as of September 30, 1997 are as follows:

<TABLE>
<CAPTION>

                                                      Gross        Gross       Estimated
                                       Amortized   unrealized   unrealized       market
                                          cost        gains       losses         value
                                          ----        -----       ------         -----
                                                            (In thousands)
Available for sale:
<S>                                     <C>           <C>         <C>         <C>     
   Treasury notes                       $ 17,982      $   3       $  ---      $ 17,985
   FHLB notes                             29,500        ---           14        29,486
   Other securities                           82        ---          ---            82
                                              --                                    --
                                          47,564          3           14        47,553
                                          ------       ----         ----      --------
Held to maturity:
   FHLB notes                              5,000        ---            7         4,993
                                          ------       ----         ----      ---------                       -         -----

   FHLMC mortgage-backed securities      118,951      1,250          ---       120,201
   FNMA mortgage-backed securities        57,903        850          ---        58,753
                                         ------        ----         ----      ---------        ---                     ------
                                         176,854      2,100          ---       178,954
                                        ------         ----         ----      ---------      -----                    -------
                                        $229,418     $2,103         $ 21      $231,500
                                        ========     ======         ====      ========
</TABLE>

The amortized cost and estimated market value of investment and  mortgage-backed
securities as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>

                                                      Gross       Gross     Estimated
                                       Amortized   unrealized  unrealized     market
                                          cost        gains      losses       value
                                          ----        -----      ------       -----
                                                          (In thousands)
Available for sale:
<S>                                      <C>          <C>         <C>      <C>     
   Treasury notes                        $ 23,457     $  ---      $ 110    $ 23,347
   FHLB notes                              10,000         31        ---      10,031
   Other securities                           115        ---        ---         115
                                         --------      -----      -----    --------
                                           33,572         31        110      33,493
                                         --------      -----      -----    --------
Held to maturity:
   FHLB notes                              20,000         16        ---      20,016
                                         --------      -----      -----    --------

   FHLMC mortgage-backed securities       114,072        ---        333     113,739
   FNMA mortgage-backed securities         39,221        328        ---      39,549
                                         --------      -----      -----    --------
                                          153,293        328        333     153,288
                                         --------      -----      -----    --------
                                         $206,865      $ 375      $ 443    $206,797
                                         ========      =====      =====    ========
</TABLE>

The amortized  cost and estimated  market value of debt  securities at September
30,  1997 and  September  30,  1996 by  contractual  maturity  are shown  below.
Expected  maturities will differ from contractual  maturities  because borrowers
may have  the  right  to call or  prepay  obligations  with or  without  call or
prepayment penalties.

                                       27
<PAGE>

<TABLE>
<CAPTION>

                                             1997                      1996
                                             ----                      ----
                                                  Estimated                Estimated
                                     Amortized      market     Amortized     market
                                        cost         value       cost        value
                                        ----         -----       ----        -----
                                                      (In thousands)
Available for sale:
<S>                                   <C>          <C>         <C>         <C>     
   Due in one year or less            $ 22,482     $ 22,482    $ 15,505    $ 15,539
   Due in one to five years             25,000       24,989      17,952      17,839
   Other securities                         82           82         115         115
                                            --           --         ---         ---
                                        47,564       47,553      33,572      33,493
                                        ------       ------      ------      ------
Held to maturity:
   Due in one year or less                 ---          ---         ---         ---
   Due in one to five years              5,000        4,993      20,000      20,016
   Other securities                        ---          ---         ---         ---
                                        ------       ------      ------      ------
                                         5,000        4,993      20,000      20,016
                                         -----        -----      ------      ------

   FHLMC mortgage-backed securities    118,951      120,201     114,072     113,739
   FNMA mortgage-backed securities      57,903       58,753      39,221      39,549
                                        ------       ------      ------      ------
                                       176,854      178,954     153,293     153,288
                                       -------      -------     -------     -------

                                      $229,418     $231,500    $206,865    $206,797
                                      ========     ========    ========    ========
</TABLE>

There were no realized gains or losses on available for sale  securities  during
1997.  During 1996,  gross realized gains and gross realized losses on available
for sale securities were $19,000 and $0, respectively. As of September 30, 1997,
the  Company  had  pledged  mortgage-backed  securities  with a market  value of
$493,000 and a carrying value of $481,000 to  collateralize  the public funds on
deposit. The Company had also pledged  mortgage-backed  securities with a market
value  of  $2,040,000  and a  carrying  value  of  $1,991,000  to  collateralize
Treasury, tax and loan accounts as of September 30, 1997.

                                       28

<PAGE>

3).    Loans
------------

Loans are summarized below:
                                             1997               1996
                                             ----               ----
Mortgage loans:                         (Dollars in thousands)
   Construction 1-4 family                 $ 47,800            $ 43,994
   Permanent 1-4 family                     629,906             584,297
   Multi-family                              15,326              17,804
   Nonresidential                            54,983              41,970
   Land                                      33,182              29,034
                                             ------              ------
       Total mortgage loans                 781,197             717,099
                                            -------             -------

Other loans:
   Commercial nonmortgage                    11,287               8,199
   Home improvement                          20,614              20,679
   Manufactured housing                      16,399              15,784
   Other consumer                            51,988              44,265
                                             ------              ------
       Total other loans                    100,288              88,927
                                            -------              ------
       Total loans receivable               881,485             806,026
                                            -------             -------

Less:
   Loans in process                          32,078              26,788
   Deferred loan fees and discounts           3,446               3,203
   Allowance for loan losses                 11,691              11,016
                                             ------              ------
                                             47,215              41,007
                                             ------              ------
       Total loans receivable, net         $834,270            $765,019
                                           ========            ========

Weighted average yield                       8.47%               8.54%

An analysis of the allowance for loan losses follows:

                                       1997           1996          1995
                                       ----           ----          ----
                                                 (In thousands)
Beginning balance                   $ 11,016       $ 10,083     $  9,434
Provision for (recovery of) loan
   losses                                782           (76)          460
Allowance for loan losses
   acquired                              ---            885          ---
Charge-offs                            (262)          (366)        (384)
Recoveries                               155            490          573
                                         ---            ---          ---

Ending balance                      $ 11,691       $ 11,016     $ 10,083
                                    ========       ========     ========

At  September  30,  1997 and 1996,  loans  with  unpaid  principal  balances  of
approximately  $2,580,000  and  $2,172,000,  respectively,  were 90 days or more
contractually  delinquent or on nonaccrual  status.  Interest income relating to
nonaccrual  loans not recognized for the years ended  September 30, 1997,  1996,
and 1995 totaled approximately $131,000, $140,000 and $231,000, respectively.

As of September  30, 1997 and 1996,  approximately  $2,377,000  and  $2,081,000,
respectively,  of loans  90 days or more  contractually  delinquent  were in the
process of foreclosure.

The investment in impaired  loans  (primarily  consisting of classified  loans),
other than those evaluated  collectively  for impairment,  at September 30, 1997
and 1996 was $12,157,000 and  $11,053,000,  respectively.  The average  recorded
investment in impaired loans during the years ended  September 30, 1997 and 1996
were approximately $12,122,000 and $13,651,000, respectively. The total specific
allowance for loan losses related to these loans was approximately  $117,000 and
$174,000,  respectively,  on  September  30, 1997 and 1996.  Interest  income on
impaired loans of approximately  $1,147,000 and $1,346,000 was recognized in the
year ended September 30, 1997 and 1996, respectively.

                                       29

<PAGE>

As of September 30, 1997 and September 30, 1996,  mortgage  loans which had been
sold on a recourse basis had  outstanding  principal  balances of $3,185,000 and
$4,424,000, respectively.

Accrued interest receivable is summarized below:


                                      1997                  1996
                                      ----                  ----
                                    (In thousands)
Loans                                $4,874                $4,625
Investment securities                   759                   676
Mortgage-backed securities            1,261                 1,190
FHLB stock dividends                    139                   130
                                        ---                   ---
                                     $7,033                $6,621
                                     ======                ======

The Company is a party to financial instruments in the normal course of business
to meet  the  financing  needs of its  customers.  These  financial  instruments
include  commitments  to extend  credit and  standby  letters  of credit.  These
instruments  involve,  to varying degrees,  elements of credit and interest rate
risk in excess of the amount  recognized in the  statements  of  condition.  The
contract  or  notional  amounts  of these  instruments  reflect  the  extent  of
involvement the Company has in particular classes of financial instruments.  The
Company  uses the same  credit  policies  in making  commitments  as it does for
on-balance  sheet  instruments.  The Company  controls  the credit risk of these
transactions through credit approvals,  limits, and monitoring procedures.  Such
commitments  are  agreements  to lend to a  customer  as  long  as  there  is no
violation of conditions established in the contract.  Commitments generally have
fixed expiration dates or other termination  clauses.  Standby letters of credit
are conditional  commitments  issued by the Company to guarantee the performance
of a customer to a third party.  The credit risk involved in issuing  letters of
credit is essentially  the same as that involved in extending loan facilities to
customers.  The Company holds collateral  supporting those commitments for which
collateral is deemed  necessary.  Since many of the  commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.

Outstanding  mortgage  loan  commitments  (excluding  loans in  process),  which
generally expire in 60 days, amounted to approximately  $12,254,000  ($4,226,000
fixed rate,  interest  rates from 6.5% to 9.5%) as of  September  30,  1997.  In
addition,  as of September 30, 1997, the Company had determined that $16,879,000
may be lent to certain home builders on a variable rate and home-by-home  basis,
subject to underwriting and product approval by the Company.

4)  Loan Servicing
------------------

Mortgage loans, including those underlying pass through securities, serviced for
others are not included in the accompanying  consolidated  financial statements.
The unpaid principal balances of these loans are summarized as follows:



                                1997          1996          1995
                                ----          ----          ----
                                 (In thousands)

FHLMC                        $ 22,888      $ 30,169      $ 39,252
FNMA                           34,217        33,521        33,961
Other Investors                 2,767         3,547         3,873
                                -----         -----         -----
                             $ 59,872      $ 67,237      $ 77,086
                             ========      ========      ========

At  September  30, 1997 and 1996,  collection  of  principal  and interest to be
remitted to FHLMC and FNMA and advance payment for taxes and insurance  relating
to FNMA serviced loans are reflected in the consolidated statements of financial
condition as advance deposits by borrowers for taxes and insurance.

                                       30

<PAGE>

5).    Real Estate Owned
---    -----------------

Real estate owned includes the following:

                                                        1997          1996
                                                        ----          ----
                                                       (In thousands)
Real estate acquired in satisfaction of loans         $ 2,892       $ 4,830
Allowance for losses                                     (578)       (1,712)
                                                         ----        ------ 
                                                      $ 2,314       $ 3,118
                                                      =======       =======

Activity in the allowance for losses on real estate owned is as follows:


                                             1997       1996         1995
                                             ----       ----         ----
                                                       (In thousands)
Beginning balance                          $ 1,712    $ 1,857      $ 2,008
Provision for (reversal of) losses           (150)        117           35
Allowance for losses  acquired                   0         21          ---
Charge-offs                                  (984)      (283)        (186)
                                             ----       ----         ---- 
Ending balance                            $    578    $ 1,712     $  1,857
                                          ========    =======     ========

Provision  for losses on real estate owned is included in income  (losses)  from
real estate operations in the consolidated statements of earnings.

Legal and  consulting  fees relating to real estate  operations  and real estate
owned are  included  in  professional  fees on the  consolidated  statements  of
earnings.

(6)    Premises and Equipment
---    ----------------------

Premises and equipment are summarized as follows:

                                                         1997          1996
                                                         ----          ----
                                                      (In thousands)
Land                                                   $ 5,239       $ 3,818
Buildings and leasehold improvements                     9,170         7,656
Furniture, fixtures and equipment                        8,080         7,518
                                                         -----         -----
                                                        22,489        18,992
Less accumulated depreciation and amortization          (9,176)       (8,449)
                                                        ------        ------ 
                                                      $ 13,313        10,543
                                                      ========        ======

Depreciation  expense  for the years ended  September  30,  1997,  1996 and 1995
totaled $952,000, $902,000, and $729,000, respectively.

                                       31

<PAGE>

(7)    Deposits
---------------

Deposits are summarized as follows:
<TABLE>
<CAPTION>
                                            1997                 1996
                                            ----                 ----
                                               Period-end           Period-end
                                      Amount   stated rate   Amount stated rate
                                      ------   -----------   ------ -----------
                                                      (Dollars in thousands)
<S>                                 <C>         <C>       <C>         <C>
Commercial checking                 $  22,032             $  19,653
Noninterest-bearing personal
   checking accounts                   18,717                13,961
NOW                                    52,045    1.32%       54,806   1.51%
Passbook                               76,540    1.69%       77,304   1.78%
Money market checking                   1,492    1.26%        1,625   1.32%
Money market investment                41,909    2.55%       40,936   2.63%
Official checks                         9,081                 6,661
                                        -----                 -----
                                      221,816               214,946
                                      -------               -------
Certificate accounts:
       2.01 - 3.00%                       545                   307
       3.01 - 4.00%                       ---                     1
       4.01 - 5.00%                    88,472               155,121
       5.01 - 6.00%                   553,986               378,999
       6.01 - 7.00%                    46,333               101,780
       7.01 - 8.00%                       424                   603
       8.01 - 9.00%                       ---                     3
       Premiums on deposits
            purchased                    ---                     93
                                       ------                    --
                                      689,760               636,907
                                      -------               -------
                                    $ 911,576             $ 851,853
                                    =========             =========

Weighted average interest rate         4.47%                 4.41%
                                       ====                  ==== 
</TABLE>



Maturities of outstanding certificates of deposit are summarized as follows:


                                 1997                     1996
                                 ----                     ----
                               (In thousands)
Less than one year             $467,204                $ 438,168
One to three years              180,702                  159,085
Over three years                 41,854                   39,654
                                 ------                   ------
                              $ 689,760                $ 636,907
                              =========                =========

The aggregate  amount of  certificates of deposit in amounts of $100,000 or more
was  approximately  $62,006,000  and $56,259,000 at September 30, 1997 and 1996,
respectively.  Balances of individual certificates in excess of $100,000 are not
federally insured.

                                       32

<PAGE>

Interest expense on deposits is summarized as follows:


                                                1997        1996        1995
                                                ----        ----        ----
                                                        (In thousands)
Passbook accounts                            $  1,356     $ 1,506     $ 1,718
Now, money market checking, and
     money marketinvestment accounts            1,896       1,724       1,782
Certificate accounts                           35,892      31,210      26,127
                                               ------      ------      ------
                                             $ 39,144    $ 34,440    $ 29,627
                                             ========    ========    ========


Early withdrawal penalties for the years ended September 30, 1997, 1996 and 1995
aggregated $205,702, $173,560 and $229,633, respectively, and are netted against
interest expense on certificate accounts.

Accrued  interest  payable of $145,989 and  $145,831 at  September  30, 1997 and
1996, respectively, is included in other liabilities.

(8)    Short-Term Borrowings
----------------------------

At September 30, 1997,  short-term  borrowings  were comprised of $30 million in
advances  from the Federal  Home Loan Bank (FHLB) due at various  dates  through
March,  1998,  with fixed terms and fixed interest rates of 5.63% to 5.81% and a
$100,000 note payable, maturing January, 1998, relating to the purchase of land.

At September 30, 1996,  short-term  borrowings  were comprised of $25 million in
advances  from the Federal  Home Loan Bank (FHLB) due at various  dates  through
February, 1997, with fixed terms and fixed interest rates of 5.58% to 5.94%.

Information concerning short-term borrowings is summarized as follows:

                                                  1997             1996
                                                  ----             ----
                                           (Dollars in thousands)
Average balance during the year                $ 29,301         $  5,997
Average interest rate during the year             5.62%            5.87%
Maximum month-end balance during the year      $ 40,000         $ 25,000

(9)    Long-Term Debt
---------------------

 Long-term debt is summarized as follows:


                                                        1997         1996
                                                        ----         ----
                                                                (In thousands)
Advances from the Federal Home Loan Bank
   (FHLB), due at various  dates  through
   December, 2005, with fixed terms and
   fixed interest rates of 5.86% to 6.5%               $70,000      $70,000
ESOP Loan, maturing December, 1998 with a
   variable interest rate of prime plus .25%,
   8.75% at September 30, 1997                             375          674
                                                           ---          ---
                                                       $70,375     $ 70,674
                                                       =======     ========


Pursuant to a collateral  agreement  with the FHLB,  advances are secured by all
stock in the FHLB and a blanket  floating  lien that  requires  the  Company  to
maintain  qualifying  first  mortgage  loans as pledged  collateral in an amount
equal to, when discounted at 75% of the unpaid principal balances, the advances.

                                       33

<PAGE>

At September 30, 1997 and 1996,  the FHLB advances and the ESOP loan have fiscal
year maturity dates as follows:


                                         1997                    1996
                                         ----                    ----
                                               Weighted              Weighted
Year ending September 30,            Amount  average rate   Amount  average rate
-------------------------            ------  ------------   ------  ------------
                                                     (Dollars in thousands)
                 1997             $     ---     ---     $      299      8.50%
                 1998                   300      8.75%         300      8.50%
                 1999                    75      8.75%          75      8.50%
                 2000                10,000      6.17%      10,000      6.17%
                 2001                 5,000      6.13%       5,000      6.13%
            2002 and after           55,000      6.10%      55,000      6.10%
            ----                     ------      ----       ------      ---- 
                                   $ 70,375      6.13%    $ 70,674      6.14%
                                   ========      ====     ========      ==== 


Other interest expense is summarized as follows:



                                 1997       1996         1995
                                 ----       ----         ----
                                         (In thousands)
Advances from the FHLB         $ 5,962    $ 4,593      $ 3,546
ESOP loan                           49         76          105
Other                                4          5            2
                                     -          -            -
                               $ 6,015    $ 4,674      $ 3,653
                               =======    =======      =======

(10)   Income Taxes

Income tax expense (benefit) on income from continuing  operations is summarized
as follows:



                        1997        1996         1995
                        ----        ----         ----
                             In thousands
Current:
   Federal           $ 5,868      $ 5,832     $ 3,766
   State                 962          965         633
                         ---          ---         ---
                       6,830        6,797       4,399
                       -----        -----       -----
Deferred:
   Federal             1,527      (1,170)       1,334
   State                 254        (195)         225
                         ---        ----          ---
                       1,781      (1,365)       1,559
                       -----      ------        -----
                     $ 8,611      $ 5,432     $ 5,958
                     =======      =======     =======

                                       34

<PAGE>

The tax effects of  temporary  differences  that give rise to the  deferred  tax
assets and  deferred  tax  liabilities  at  September  30,  1997 and 1996 are as
follows:


                                                   1997            1996
                                                   ----            ----
                                                        (In thousands)
Deferred tax assets:
   Allowance for bad debts                       $ 1,713         $ 1,440
   Valuation of real estate owned                    626             704
   Deferred compensation                             692             681
   SAIF special assessment                           ---           1,929
   Other                                              71              71
                                                      --              --
                                                   3,102           4,825
   Less valuation allowance                        (250)           (250)
                                                   ----            ---- 
       Total deferred tax assets                   2,852           4,575
                                                   -----           -----
Deferred tax liability:
   Net deferred loan fees and costs                3,332           3,333
   FHLB stock dividend                               840             840
   Premises and equipment depreciation 
     difference                                      447             355
   Purchase accounting adjustments                   360             350
   Cash to accrual adjustment                         88             132
   Installment sales                                 128             128
   Other                                              17              16
                                                      --              --
       Total deferred tax liability                5,212           5,154
                                                   -----           -----
                                                   2,360             579
Unrealized loss on available for sale
     securities                                       (3)            (29)
                                                      --             --- 
       Net deferred tax liability                  2,357             550
Less liability at beginning of year                (550)         (2,055)
Deferred tax asset acquired from Treasure Coast
   Bank                                              ---             111
Change in unrealized loss on available for sale
   securities                                       (26)              29
                                                    ---               --
Provision (benefit) for deferred income taxes    $ 1,781       $ (1,365)
                                                 =======       ======== 


Income tax expense on income from  continuing  operations is different  than the
amount  computed by applying the United States Federal income tax rate of 34% to
income from continuing operations before income taxes because of the following:


                                                   1997        1996        1995
                                                   ----        ----        ----
Statutory Federal income tax rate                 34.0%       34.0%       34.0%
State income tax (net of Federal income tax        3.6         3.6         3.6
benefit)
Other                                              1.7         1.0         ---
                                                   ---         ---         ---
Effective tax expense rate                        39.3%       38.6%       37.6%
                                                  ====        ====        ==== 


Deferred  income  taxes  payable of  approximately  $2,357,000  and  $550,000 at
September 30, 1997 and 1996,  respectively,  are included in other  liabilities.
Included  in  deferred  income  taxes  payable at  September  30,  1996 is a net
deferred tax asset of approximately  $110,000 acquired from Treasure Coast Bank,
FSB (see note 17).

                                       35

<PAGE>

Retained earnings at September 30, 1997 includes approximately  $14,500,000 base
year tax bad debt  reserve  for which no deferred  Federal and state  income tax
liability has been recognized.  These amounts  represent an allocation of income
to bad debt deductions for tax purposes only.  Reduction of amounts so allocated
for  purposes  other  than tax bad  debt  losses  or  adjustments  arising  from
carryback of net  operating  losses would create  income for tax purposes  only,
which  would be  subject to the then  current  corporate  income  tax rate.  The
unrecorded  deferred income tax liability on the above amounts was approximately
$5,600,000 at September 30, 1997.

(11)   Regulatory Matters
----   ------------------

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate certain mandatory,  and possibly additional  discretionary,  actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Company's  financial  statements.  Under  capital  adequacy  guidelines  and the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities,  and certain off-balance-sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  I  capital  (as  defined  in the  regulations)  to
risk-weighted  assets  (as  defined),  and of Tier I  capital  (as  defined)  to
adjusted tangible assets (as defined).  Management believes, as of September 30,
1997,  that the Bank  meets all  capital  adequacy  requirements  to which it is
subject.

As of September 30, 1997, the most recent notification from the Office of Thrift
Supervision  categorized  the  Bank as well  capitalized  under  the  regulatory
framework for prompt  corrective  action.  To be categorized as well capitalized
the Bank must maintain minimum total risk-based,  Tier I risk-based,  and Tier I
leverage  ratios as set forth in the table.  There are no  conditions  or events
since that notification that management  believes have changed the institution's
category.

                                       36
<PAGE>

The Bank's actual capital amounts and ratios are also presented in the table.


<TABLE>
<CAPTION>
                              Dollars in thousands
                                                                              To be well capitalized
                                                              For Capital      Under Prompt Corrective
                                     Actual                 Adequacy Purpose    Action Provisions
                                  Amount      Ratio         Amount    Ratio    Amount       Ratio
<S>                               <C>          <C>         <C>       <C>       <C>           <C>
As of September 30, 1997
   Total Capital (to risk-
        weighted assets)         $89,721       15.15%      $47,371   > 8.0%    $59,213       >10.0%
   Tier I Capital (to risk-
       weighted assets)           82,269       13.89%       23,685   > 4.0%     35,528       > 6.0%
   Tier I Capital (to
       adjusted tangible
       assets)                    82,269        7.29%       33,842   > 3.0%     56,404       > 5.0%
   Tangible Capital (to
       adjusted tangible
       assets)                    82,269        7.29%       16,921   > 1.5%       n/a            n/a
As of September 30, 1996
   Total Capital (to risk-
       weighted assets)           87,890       16.13%       43,593   > 8.0%     54,492       >10.0%
   Tier I Capital (to risk-
       weighted assets)           81,030       14.87%       21,797   > 4.0%     32,695       > 6.0%
   Tier I Capital (to
       adjusted tangible
       assets)                    81,030        7.69%       31,609   > 3.0%     52,682       > 5.0%
   Tangible Capital (to
       adjusted tangible          81,030        7.69%       15,805   > 1.5%       n/a           n/a
       assets)
</TABLE>


The following is a reconciliation of the Bank's capital under generally accepted
accounting principles (GAAP) to regulatory capital (in thousands):

                                       37

<PAGE>

<TABLE>
<CAPTION>
                                             Equity        Tangible     Risk-based
                                             capital       capital        capital
                                             -------       -------        -------
September 30, 1997
<S>                                         <C>           <C>             <C>     
GAAP capital/equity capital                 $ 85,307      $ 85,307        $ 85,307
Unrealized loss on investment               ========
   securities available for sale, net                            7               7
Goodwill                                                    (3,045)         (3,045)
General valuation allowance                                    ---           7,452
                                                          --------           -----
Regulatory capital measure                                $ 82,269        $ 89,721
                                                          ========        ========



September 30, 1996
GAAP capital/equity capital                 $ 84,832      $ 84,832        $ 84,832
Unrealized loss on investment               ========
   securities available for sale, net                           49              49
Investment in and advance to 
   nonincludable subsidiary required
   to be deducted                                             (264)           (264)
Goodwill                                                    (3,587)         (3,587)
General valuation allowance                                  ---             6,860
                                                          --------           -----
Regulatory capital measure                                $ 81,030        $ 87,890
                                                          ========        ========

September 30, 1995
GAAP capital/equity capital                 $ 77,500      $ 77,500        $ 77,500
General valuation allowance                 ========           ---           5,773
                                                          --------           -----
Regulatory capital measure                                $ 77,500        $ 83,273
                                                          ========        ========

</TABLE>


At September 30, 1997, $8,361,000 of retained earnings is restricted relating to
the  dividends on the Company's  shares owned by the Holding  Company which have
been waived.  The dividend  waiver was approved by the OTS and is available only
to the Holding  Company.  The dividend  will be accrued only when the payment of
such amount is probable.

In the unlikely event of a complete liquidation of the Mutual Holding Company in
its present  mutual form,  each depositor of the Bank would receive his pro rata
share of any assets of the Mutual  Holding  Company  remaining  after payment of
claims of all  creditors.  Each  depositor's  pro rata  share of such  remaining
assets would be in the same  proportion as the value of his deposit  account was
to  the  total  value  of all  deposit  accounts  in the  Bank  at the  time  of
liquidation.

The Certificate of  Incorporation of the Company provides that in no event shall
any record owner of any outstanding  Common Stock which is  beneficially  owned,
directly or indirectly,  by a person who  beneficially  owns in excess of 10% of
the then  outstanding  shares of Common  Stock  (the  "Limit")  be  entitled  or
permitted to any vote in respect of the shares held in excess of the Limit.

The Company has authorized but not issued preferred stock, subject to regulatory
restrictions and determination of rights and preferences to be determined by the
Board of Directors.

                                       38

<PAGE>

On September 30, 1996,  President Clinton signed The Deposit Insurance Funds Act
of 1996,  which was intended to recapitalize the Savings  Association  Insurance
Fund ("SAIF") and  substantially  bridge the assessment rate disparity  existing
between SAIF and Bank Insurance Fund insured institutions. The new law subjected
institutions with  SAIF-assessable  deposits,  including the Bank, to a one-time
assessment of 65.7 basis points of assessable deposits as of March 31, 1995, and
provides for, among other things, a sharing of FICO bond obligation  fundings by
banks and thrifts and the eventual  merger of the Bank  Insurance  Fund with the
SAIF.  The  Bank's  one-time   assessment   resulted  in  a  pre-tax  charge  of
approximately  $4,552,000,  which  was paid on  November  27,  1996  and,  under
provisions  of the new law, was treated for tax  purposes as a fully  deductible
"ordinary and necessary  business expense" when paid.  Results of operations for
the year ended September 30, 1996 include a charge for this one-time assessment.

Additionally,  the Bank  recorded  a pre-tax  charge of  approximately  $450,000
related to the application of this assessment to deposits held by Treasure Coast
(see note 17) at March 31,  1995.  Such  charge was  reflected  as a cost of the
acquisition of Treasure Coast.

(12)   Commitments and Contingencies
----   -----------------------------

As of  September  30,  1997,  the  Company  had  irrevocable  letters  of credit
aggregating approximately $501,000.

The Company and certain other  entities are defendants in a class action lawsuit
which was filed in May 1991.  The plaintiffs in the litigation are purchasers of
parcels of developed and undeveloped land from General  Development  Corporation
("GDC") who allege that GDC, through fraudulent means,  induced them to buy land
at  inflated  values.  The Company is a  defendant  in this matter  along with a
number of other  financial  institutions,  purchasers  of loans in the secondary
market,  broker dealers, an insurance company and numerous other individuals and
companies.  The  involvement of the Company arises from its purchase from GDC of
land  sales  contracts  originated  by GDC.  The  Company,  along with the other
defendants, filed a motion to dismiss the case which was granted. The plaintiffs
filed an appeal with the Third Circuit Court of Appeals which  remanded the case
to the District Court for reconsideration.  The District Court entered its order
dismissing the case again.

The  plaintiffs  filed a motion  requesting  the  District  Court  to amend  the
dismissal order to permit the plaintiffs to file another amended complaint.  The
District Court denied the plaintiff's motion. The plaintiffs appealed that order
to the Third  Circuit  and both  sides  were  directed  to submit  supplementary
briefs.  Management  believes  that the  position of the  plaintiffs  is without
merit.

The Company and  subsidiaries  are  defendants in certain other claims and legal
actions  arising  in  the  ordinary  course  of  business.  In  the  opinion  of
management,  after consultation with legal counsel,  the ultimate disposition of
these  matters  is  not  expected  to  have a  material  adverse  effect  on the
consolidated financial statements of the Company and subsidiaries.

(13)   Related Party Transactions
---------------------------------

Directors,  executive  officers and  principal  stockholders  of the Company had
certain  transactions  with the Company in the ordinary  course of business,  as
described below.

Loan  transactions were made on substantially the same terms as those prevailing
at the time for  comparable  loans to other  persons,  did not involve more than
normal risk of collectibility, and are performing as agreed.

The summary of changes in the related party loans follows:

<TABLE>
<CAPTION>
                                          1997          1996       1995
                                          ----          ----       ----
                                                  (In thousands)
<S>                                    <C>           <C>        <C>    
Outstanding loans - beginning of year  $ 1,786       $ 1,478    $ 1,386
New loans                                3,015           842        176
Repayments                              (2,517)         (534)       (84)
                                        ------          ----        --- 
Outstanding balance - end of year      $ 2,284       $ 1,786    $ 1,478
                                       =======       =======    =======
</TABLE>

The Company paid approximately $150,000, $125,000 and, $159,000 of legal fees in
the years ended September 30, 1997, 1996 and 1995,  respectively,  to a law firm
in which a director of the Company is a partner.

                                       39

<PAGE>

Richard K. Davis,  a director  of the  Company,  is also  chairman of Richard K.
Davis Construction Corp ("Davis Construction"). In the years ended September 30,
1997 and 1996,  the  Company  paid Davis  Construction  a total of  $27,057  and
$76,887,  respectively,  for a roof on a new branch  facility and  re-roofing of
existing  branch  facilities.  Additionally,  Davis  Construction  is  currently
constructing a new office and drive-in facility for the Company.  This contract,
worth  $905,499,  was  awarded  June  25,  1997.  The  contract  was put out for
competitive bid and was awarded to Davis  Construction  because it submitted the
lowest  bid for the  contract.  During  1997,  total  payments  related  to this
contract were $216,795.

Prior to Richard N. Bird's nomination,  and subsequent election, to the Board of
Director's  of the  Company,  Bird Realty  Group,  Inc.  entered  into a listing
agreement  with the Company on property  listed at  $3,895,000.  The  commission
related to the sale could be up to 6% of the  selling  price if Bird Realty also
becomes the  selling  broker.  The  listing  expires on  December  16,  1997.  A
commission  of $25,000 was also paid to Bird  Realty  during 1997 with regard to
the sale of property.

(14)   Other Expense
--------------------

Other expense consists of the following:

Dollars in thousands
                                1997            1996        1995
                                ----            ----        ----
Data processing               $ 1,188         $ 1,092     $   994
Advertising                       942             735         622
Postage                           364             294         252
Insurance                         162             214         216
Telephone                         280             265         252
OTS assessment                    212             190         171
Other                           1,639           1,193       1,097
                                -----           -----       -----
                              $ 4,787         $ 3,983     $ 3,604
                              =======         =======     =======

(15)   Disclosures About Fair Value of Financial Instruments
------------------------------------------------------------

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

Cash and Amounts Due From Depository  Institutions,  Interest-Bearing  Assets in
Other Banks and Federal  Funds Sold - The  carrying  amount of these assets is a
reasonable estimate of their fair value.

Investment  Securities and  Mortgage-Backed  Securities  Held to Maturity - Fair
value equals quoted market price, if available.  If a quoted market price is not
available,  fair value is  estimated  using  quoted  market  prices for  similar
securities.

Investment Securities Available for Sale - Fair value equals carrying value.

Loans - The fair value of loans is  estimated by  discounting  future cash flows
using the current rate at which  similar  loans would be made to borrowers  with
similar credit ratings for the same remaining maturities.

Deposits  -  The  fair  value  of  demand  deposits,  interest-bearing  checking
accounts,  savings and money market  deposits is the amount payable on demand at
the reporting date. The fair value of certificates of deposit is estimated using
the rates currently offered for deposits of similar remaining maturities.

Short and Long Term  Advances from the FHLB - Rates  currently  available to the
Company for FHLB advances with similar terms and remaining  maturities  are used
to estimate the fair value of FHLB advances.

ESOP Loan - The  carrying  amount of the ESOP loan is a  reasonable  estimate of
fair market value.

Commitments  to Extend Credit and Standby  Letters of Credit - The fair value of
commitments is insignificant.

The estimated  fair values of the Company's  financial  instruments at September
30, 1997 and 1996 are as follows:

                                       40

<PAGE>

<TABLE>
<CAPTION>
                                                           1997               1996
                                                           ----               ----
                                                   Carrying      Fair   Carrying     Fair
                                                    amount       value   amount      value
                                                    ------       -----   ------      -----
<S>                                               <C>         <C>       <C>       <C>     
Assets:                                                           (In thousands)
   Cash and amounts due from depository
       institutions                               $ 16,899    $ 16,899  $ 16,137  $ 16,137
   Interest-bearing deposits in other banks         15,736      15,736    16,350    16,350
   Federal funds sold                                  250         250    16,075    16,075
   Investment securities held to maturity            5,000       4,993    20,000    20,016
   Investment securities available for sale         47,553      47,553    33,493    33,493
   Mortgage-backed securities held to
       maturity                                    176,854     178,954   153,293   153,288
   Loans held for sale                                 141         144     4,870     4,870
   Loans                                           845,961     858,944   776,035   776,346
   Less allowance for loan losses                  (11,691)      ---     (11,016)    ---
                                                   -------     -------   -------        
       Loans, net                                  834,270     858,944   765,019   776,346
                                                   -------     -------   -------   -------
Liabilities
   Commercial checking, non-interest-
       bearing personal, NOW, passbook,
       money market accounts and official
       checks                                      221,816     221,816   214,946   214,946
   Certificate accounts                            689,760     691,406   636,907   638,592
   FHLB advances                                   100,000      98,887    95,000    91,882
   ESOP loan                                           375         375       674       674
</TABLE>


Fair  value  estimates  are made at a specific  point in time based on  relevant
market  information  and  information  about  the  financial  instrument.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the  Company's  entire  holdings of a particular  financial
instrument.  Because no market exists for a portion of the  Company's  financial
instruments,  fair  value  estimates  are based on  judgments  regarding  future
expected loss experience,  current economic conditions,  risk characteristics of
various financial instruments and other factors.  These estimates are subjective
in nature and involve  uncertainties  and matters of  significant  judgment and,
therefore,  cannot be determined  with precision.  Changes in assumptions  could
significantly affect the estimates.

(16)   Benefit Plans
--------------------

The Company has a  noncontributory-defined  benefit  pension  plan  covering all
employees  who have  attained  one year of service and 21 years of age.  Pension
expense  was  $8,500,  $7,400,  and  $8,500,  respectively,  for the years ended
September 30, 1997, 1996 and 1995. The plan is a multi-employer  plan.  Separate
actuarial  valuations  are not made for each  employer  nor are plan  assets  so
segregated. The assumed average rate of return used in determining the actuarial
present value of accumulated plan benefits was 7.5%. The date of the most recent
actuarial evaluation is June 30, 1996.

                                       41

<PAGE>

The Company has a deferred  compensation  plan for  Directors  (the  "Directors'
Deferred  Compensation Plan") who may elect to defer all or part of their annual
director  fees to fund  the  Directors'  Deferred  Compensation  Plan.  The plan
provides  that deferred fees are to earn interest at an annual rate equal to the
30-month  certificate  of deposit rate,  adjusted and compounded  quarterly.  At
September  30,  1997  and  1996,  deferred  directors  fees  included  in  other
liabilities aggregated $195,069 and $309,790, respectively.  Directors may elect
to have their deferred  compensation balance invested in shares of the Company's
common stock. When the Company purchases common stock in the open market to fund
such  investment,  these purchases are reflected as a reduction in stockholders'
equity.  Such  purchases  were  approximately  $273,000 and $238,000 in 1997 and
1996, respectively. No shares were purchased in 1995.

The Company also has a retirement plan for  nonemployee  directors (the "Plan").
The annual basic  benefit under the Plan is based on a percentage of the average
three years  director's fees preceding the termination of service  multiplied by
the  number  of  years of  service,  not to  exceed  50% of the  average  annual
director's  fees.  During the years ended September 30, 1997, 1996 and 1995, the
charge to earnings relating to the Plan was insignificant.

As part of the  reorganization  to the stock form of  ownership,  the  Company's
Employee Stock Ownership Plan ("ESOP") purchased 149,800 shares of the Company's
common stock at $10 per share, or $1,498,000, which was funded by a loan from an
unaffiliated  lender.  The ESOP covers all eligible employees of the Company age
21 and  over.  The  Company  makes  scheduled  cash  contributions  to the  ESOP
sufficient to service the amount borrowed.  Dividends paid on unallocated shares
reduce  the  Company's  cash  contribution  to the  ESOP.  For the  years  ended
September 30, 1997 and 1996, total contributions to the ESOP, which were used to
fund  principal and interest  payments on the ESOP debt,  totaled  approximately
$259,000 and $375,000,  respectively.  At September 30, 1997,  there were 95,356
allocated   shares,   22,485  shares  committed  to  be  released,   and  37,435
suspense(unallocated  and not yet  committed to be released)  shares held by the
ESOP.  Allocated  shares and shares committed to be released are included in the
weighted  average common shares  outstanding used to compute earnings per share.
Total compensation  expense charged to earnings in the years ended September 30,
1997 and 1996, totaled $1,165,500 and $766,500,  respectively.  At September 30,
1997, the fair value of the unallocated shares was $3,355,520.

Additionally,  the Company's  Recognition and Retention Plans ("RRP")  purchased
64,200 shares at $10 per share totaling $642,000.  The funds used to acquire the
RRP shares were contributed by the Company.  The purchase price of $642,000 will
be amortized as  compensation  expense  ratably over the  participants'  vesting
period of three years.

The Company's  401(k) Profit  Sharing Plan and Trust (the "401(k)  Plan") covers
all eligible  employees of the Company age 21 and over. An eligible employee may
elect to  contribute  to the 401(k) Plan in the form of  deferrals of between 1%
and 15% of the  total  compensation  that  would  otherwise  be  payable  to the
employee.  Employee  contributions  are fully vested and  nonforfeitable  at all
times. The 401(k) Plan permits contributions by the Company. The Company intends
initially  to  make  matching  contributions  of  25% of the  first  6% of  each
participant's  contributions.  For the years ended  September 30, 1997 and 1996,
the Company's matching  contribution totaled  approximately $83,000 and $75,000,
respectively.

At September  30,  1997,  the Company had a stock option plan for the benefit of
directors, officers, and other key employees of the Company. The Company applies
APB  Opinion  25 and  related  Interpretations  in  accounting  for  its  plans.
Accordingly, no compensation cost has been recognized for its fixed stock option
plan since stock  option  exercise  prices are equal to market  price at date of
grant.  The number of shares of common stock  reserved  for  issuance  under the
stock  option plan is equal to 214,000  shares,  or 9.6% of the total  number of
common  shares  issued  in the  minority  offering  pursuant  to  the  Company's
reorganization  to the stock form of ownership.  The stock options vest in equal
installments  over varying  periods not to exceed 10 years,  depending  upon the
individual's position in the Company.

                                       42

<PAGE>

A summary of the Company's stock option plan is presented below:

<TABLE>
<CAPTION>
                                                      Years Ended September 30,
                                             1997               1996                 1995
                                             ----               ----                 ----
                                                 Weighted           Weighted              Weighted
                                                 average            average               average
                                                 exercise           exercise              exercise
                                        Number    price    Number    price      Number     price
                                        ------    -----    ------    -----      ------     -----
<S>                                    <C>        <C>     <C>        <C>       <C>         <C>
Options outstanding 
     beginning of year                 170,106    $10.73  191,569    $10.25    208,660     $10.00
Options granted                          4,500    $34.47    4,500    $27.00      7,400     $16.50
Options exercised                      (38,974)   $10.00  (23,463)   $10.00    (16,791)    $10.00
Options forfeited                       (1,334)   $18.95   (2,500)   $10.00     (7,700)    $10.00
                                        ------    ------   ------    ------     ------     ------
Options outstanding end of year        134,298    $11.66  170,106    $10.73    191,569     $10.25
                                       =======    ======  =======    ======    =======     ======
Options exercisable at year-end         50,264             34,913               20,792
                                        ======             ======               ======
Weighted average fair value of 
     options granted during the year    $ 7.38             $ 6.60
                                        ======             ======
</TABLE>
   

The following table summarizes  information  about stock options  outstanding at
September 30, 1997:

<TABLE>
<CAPTION>
                                Options outstanding                                        Options exercisable
                                -------------------                                        -------------------
                                              Weighted
                           Number              average             Weighted             Number              Weighted
      Range of          outstanding @         remaining        average exercise      exercisable @      average exercise
  exercise prices          9/30/97        contractual life           price              9/30/97               price
  ---------------          -------        ----------------           -----              -------               -----
<S>                       <C>                    <C>                <C>                  <C>                   <C>   
       $10.00             118,398                6.1                $10.00               50,264                $10.00
       $16.50               7,400                7.2                $16.50                 ---                  ---
       $27.00               4,500                8.1                $27.00                 ---                  ---
  $33.88 to 34.00           3,500                9.1                $33.98                 ---                  ---
  $38.25 to 40.75             500                9.6                $38.50                 ---                  ---
</TABLE>

Had  compensation  cost for the Company's  stock-based  compensation  plans been
determined  consistent  with  Statement  123, the  Company's  net income and net
income per share  would have been  reduced  to the pro forma  amounts  indicated
below:


                                       1997         1996
                                       ----         ----
Net income        As reported       $ 13,327      $ 8,640
                  Pro forma           13,294        8,611
Net income
per share         As reported          2.66         1.75
                  Pro forma            2.66         1.74

Only options granted after October 1, 1995 are included in pro-forma amounts.

                                       43

<PAGE>

The option method used to calculate the  Statement 123  compensation  adjustment
was  the  Binomial  model  with  the  following   grant  date  fair  values  and
assumptions:
<TABLE>
<CAPTION>
                    Number of
    Date of          options         Grant date       Exercise       Risk free        Expected         Expected         Expected
     grant           granted         fair value         price      interest rate    life (years)      volatility        dividend
     -----           -------         ----------         -----      -------------    ------------      ----------        --------
<S>                    <C>             <C>            <C>              <C>               <C>            <C>             <C>   
     01/06/96          4,500           $ 6.60         $ 27.00          5.421%            5              38.71           $ 1.60
     11/27/96          1,000             7.27           33.88          5.912             5              29.89             1.80
     01/06/97          3,000             7.13           34.00          6.291             5              28.33             1.80
     06/16/97            450             9.01           38.25          6.276             5              30.71             1.90
     06/20/97             50            10.05           40.75          6.271             5              31.11             1.90
</TABLE>


(17)   Acquisition of Treasure Coast
------------------------------------

On June 1, 1996,  the Company  acquired all of the  outstanding  common stock of
Treasure  Coast  Bank,  FSB  ("Treasure  Coast"),  a  Florida  based  bank,  for
approximately  $6.8 million in cash. The acquisition was accounted for using the
purchase  method.  Treasure Coast had assets of approximately  $75 million.  The
acquisition  added one branch to the Company's  branch  network.  The results of
operations  of  Treasure  Coast  from June 1,  1996 to  September  30,  1996 are
included in the consolidated financial statements of the Company.

The fair value of assets  acquired and liabilities  assumed in conjunction  with
the acquisition of Treasure Coast was as follows:


                                    (In thousands)
Cash                                    $ 2,315
Investments                               7,039
Mortgage-backed securities                  287
Loans receivable, net                    62,575
Accrued interest receivable                 437
Real estate owned                            86
Property and equipment                    1,778
Goodwill                                  3,365
Other assets                                542
Fair value of assets acquired            78,424
Deposits                                 70,239
Other liabilities                         1,712
Fair value of liabilities assumed        71,951
Acquisition costs                           293
Purchase of Treasure Coast                6,766
Cash acquired                             2,315
Purchase of Treasure Coast, 
     net of cash acquired               $ 4,451


                                       44

<PAGE>

The following table  indicates the estimated net decrease in earnings  resulting
from the net  amortization/accretion  of the  adjustments,  including  goodwill,
resulting from the use of the purchase  method of accounting  during each of the
years  1997  through  2001.  The  amounts  (in  thousands)  assume  no  sales or
dispositions of the related assets or liabilities.


                                            Net
                                        decrease of
Years ending September 30,              net earnings
--------------------------              ------------
       1997                                     (232)
       1998                                     (325)
       1999                                     (325)
       2000                                     (298)
       2001                                     (245)
       Thereafter                             (2,364)

Adjustments to fair value are being  amortized on a straight-line  basis,  which
approximates  the level yield method,  over the  estimated  average term of four
years for  loans,  and one year for  deposits.  Goodwill  does not  qualify  for
amortization  for tax purposes.  Goodwill is being  amortized on a straight-line
basis over its estimated  useful life of 15 years.  Goodwill as of September 30,
1997 is $3.0 million.

The following is pro forma  information  for the years ended  September 30, 1996
and 1995 as if the Treasure  Coast  purchase was  consummated on October 1, 1995
and 1994,  respectively (in thousands,  except for per share data), after giving
effect to certain  adjustments,  including  amortization  of goodwill  and other
purchase  accounting  adjustments,  and interest income assumed  foregone on the
funding of the acquisition:

<TABLE>
<CAPTION>
                                                         For the year ended                  For the year ended
                                                         September 30, 1996                  September 30, 1995
                                                         ------------------                  ------------------
                                                    Historical         Pro forma      Historical         Pro forma
                                                    ----------         ---------      ----------         ---------
                                                             (Unaudited)                         (Unaudited)
<S>                                                   <C>               <C>           <C>               <C>     
Interest income                                       $ 74,357          $ 77,840      $ 64,885          $ 69,855
Interest expense                                        39,114            41,214        33,281            36,411
Provision for (recovery of) loan losses                   (76)               510           460               536
Net interest income after provision for loan
   losses                                               35,319            36,116        31,144            32,908
Net income                                               8,640             7,971         9,895             9,748
Net income per share                                   $ 1.75            $ 1.61        $ 2.03             $ 2.00
</TABLE>

These pro forma  results may not be  representative  of the actual  results that
would have occurred or may occur in the future.

                                       45

<PAGE>

(18)   Quarterly Results of Operations (Unaudited)
--------------------------------------------------

The quarterly  results of operations for the years ended  September 30, 1997 and
1996 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                      For the Three Months Ended Fiscal 1997
                                          September 30        June 30         March 31     December 31
                                          ------------        -------         --------     -----------
<S>                                         <C>              <C>             <C>            <C>     
Interest income                             $ 22,009         $ 21,554       $ 20,723       $ 20,528
Interest expense                              11,777           11,447         11,002         10,932
       Net interest income                    10,232           10,107          9,721          9,596
Provision for loan losses                        326              205            126            125
       Net interest income after
            provision for loan losses          9,906            9,902          9,595          9,471
Total other income                             1,318            1,041            860            994
Total other expenses                           5,442            5,318          5,106          5,282
       Income before income taxes           $  5,782         $  5,625       $  5,349        $ 5,183
Net income                                  $  3,510         $  3,416       $  3,301        $ 3,101
Net income per share (1)                      $ 0.70           $ 0.68         $ 0.66         $ 0.62
</TABLE>


<TABLE>
<CAPTION>

                                                      For the Three Months Ended Fiscal 1996
                                          September 30        June 30       March 31     December 31
<S>                                         <C>              <C>            <C>            <C>     
Interest income                             $ 19,885         $ 18,618       $ 18,221       $ 17,632
Interest expense                              10,461            9,754          9,471          9,428
       Net interest income                     9,424            8,864          8,750          8,204
Provision for loan losses                         72             (19)             28          (158)
       Net interest income after  
            provision for loan losses          9,352            8,883          8,722          8,362
Total other income                               744              562            827            752
Total other expenses (2)                       9,481            4,857          5,057          4,737
       Income before income taxes          $     615         $  4,588       $  4,492       $  4,377
Net income                                 $     390         $  2,807       $  2,736       $  2,707
Net income per share (1)                      $ 0.08           $ 0.57         $ 0.55         $ 0.55
</TABLE>


(1)  Net income per share was  computed by dividing  net income by the  weighted
     average number of shares of common stock  outstanding  during the quarters.
     Adjustments  have been made,  where material,  to give effect to the shares
     that would be outstanding, assuming the exercise of dilutive stock options,
     all of which are considered common stock equivalents.

(2)  The  quarter  ended  September  30,  1996  amounts  include a one time SAIF
     assessment of $4,552,000.

(19) Subsequent Event
---------------------

On August 27, 1997,  the Company  announced that the Board of Directors of their
Mutual Holding Company, Harbor Financial,  M.H.C., has determined to convert the
Mutual Holding  Company to a capital stock  corporation.  Upon completion of the
Conversion, the Mutual Holding Company will cease to exist. Pursuant to the Plan
of Conversion,  shares of Harbor Florida  Bancorp,  Inc.  previously held by the
Mutual  Holding  Company  will be sold.  The  remaining  shares  will be sold in
subscription and community offerings. The Conversion is expected to be completed
in the first calendar quarter of 1998.

                                       46

<PAGE>

Direct costs of the sale of stock, if completed, will be recorded as a reduction
in proceeds  from the sale of stock and applied to paid in capital.  If the sale
of stock is not completed,  such costs will be charged to expense.  At September
30, 1997,  $30,000 of such costs had been  incurred  and were  included in other
assets on the balance sheet.

The Plan of Conversion  provides for the  establishment,  upon the completion of
the Conversion,  of a special "liquidation  account" for the benefit of Eligible
Account Holders and Supplemental  Eligible Account Holders in an amount equal to
the  amount of any  dividends  waived by the  Mutual  Holding  Company  plus the
greater  of (1)  100% of the  Bank's  retained  earnings  of  $34.5  million  at
September 30, 1992, the date of the latest balance sheet  contained in the final
offering  circular  utilized in the Bank's initial public offering in the Mutual
Holding Company Reorganization,  or (2) 53.41% of the Bank's total stockholders'
equity  as  reflected  in its  latest  balance  sheet  contained  in  the  final
Prospectus  utilized  in the  Offerings  plus  the  amounts  distributed  to the
mid-tier  holding  company by the Bank at the formation of the Mid-tier  Holding
Company.  Each eligible Account Holder and Supplemental Eligible Account Holder,
if such person were to continue to maintain such person's deposit account at the
Bank,  would be  entitled,  upon a  complete  liquidation  of the Bank after the
conversion,  to an interest in the  liquidation  account prior to any payment to
the Company as the sole stockholder of the Bank.

For a period of one year after the date of the Conversion,  total dividends paid
to  stockholders  must not exceed the net income of the  Company  during the one
year period.

Pursuant  to  OTS  regulations,   certain  restrictions  will  be  imposed  upon
directors, executive officers and their associates, and the Company with respect
to stock purchases for the period following completion of the Conversion.

                                       47